AndyKroll.com

Yes, we’ve heard chapter and verse on the recent stress test announcements for those 19 major financial institutions — that 10 of those banks together need $75 billion in extra capital, that the rest were deemed prepared should the government’s worst-case scenarios become reality. There’s also been plenty of criticism aimed at the stress tests. Mother Jones‘s Nomi Prins called the tests “meaningless,” because 

[f]or starters, the results were predictable—the 10 banks that need more capital were obviously still struggling. Nor was there a big mystery about how much capital they required: There are rules that determine the amount of money banks should set aside to cover their risks, and had those rules been enforced, the institutions wouldn’t now be dependent on the public dime. What makes the hype over the stress tests so galling is that the Fed should have been doing this kind of monitoring all along.

 

 

But the most farcical thing about the process is that after more than two months of intrigue and secrecy and tactical leaks, we still don’t have an accurate picture of the weaknesses of the financial system. In fact, the banks were allowed to participate in the design of the tests—for instance, by naming the price of the securities that they can’t get rid of. Now, the government is using the results as rubber stamps for the flawed policy it has pursued since the crisis started. 

And there are plenty more criticisms like Prins’s going around.

Another set of stress tests — arguably much important consequential to you and I — came out recently to much less fanfare. According to Institutional Risk Analytics, stress tests of the U.S.’s approximately 8,000 banks found that almost 1,600 are in trouble and could pose a larger threat to the country’s economic health than the Wall Street titans who were supposedly scrutinized in the government’s stress tests.

The editor of IRA’s newsletter, Christopher Whalen, told The Age newspaper that “We may have wasted valuable time trying to save Wall Street at the cost of Main Street.”

Whalen continues, “The numbers indicate we need to seriously ask the question as to whether economic recovery for the United States can still come from repairing Wall Street — or whether instead we should be worried about addressing the underlying loss rates that are driving the provisioning behind these poor ROE (return on equity) results.

“Has the time come to shift the policy focus away from the things that we love, namely big zombie banks, to tackle those things that are truly hurting us?”

Yet there has been scant discussion of IRA’s stress-test findings in the mainstream media, even though the failure of so many more regional and even local banks could more directly impact taxpayers than those “big zombie banks.”

I’ll be writing about the “other” stress test, the Main Street one, in a piece I’m currently working on for TomDispatch on the bailout and taxpayers. Should be coming out early next month, so keep an eye out at TomDispatch.com (or here, of course) for that.