Not Going To Happen

Ahh, Cassandra, the oracle doomed in Greek mythology to be the prophetess of the truth, and yet cursed that no one would listen to her dire warnings. TARP Oversight Panel chair Elizabeth Warren should consider changing her name as she warns the bank stress tests should be redone immediately, as we've already exceeded the worst case scenarios those tests assumed.

The tests, for instance, used worst-case scenario data for economic yardsticks such as the unemployment rate and mortgage delinquencies.

The report notes that the jobless rate is now 9.4 percent, with a 2008 average of 8.5 percent. "If the monthly rate continues to increase during the remainder of this year, it will likely exceed the 2009 average of 8.9 percent assumed under the more adverse scenario," the authors note.

For this reason and others, the tests should be repeated, as much as necessary, partly because "banks continue to hold large amounts of toxic assets on their books".

The report's key recommendations also include: the release of more information on the test results; a more transparent repayment process for firms receiving financial aid; and better disclosure on how the Treasury Department would use repaid TARP funds.

In one way or another, TARP has been highly controversial from its inception in the Bush administration through its latest reincarnation with the Obama administration. Observers say how and when the money gets paid back has become as much of a political football as how its been used by banks.

COP Chairman Warren has been highly critical of both the government’s administration of TARP and banks use of the money.

COP member Hensarling Monday introduced legislation calling for the termination of the program by the end of 2009, saying, "the economic justification for TARP’s creation and taxpayer assistance to financial institutions no longer exists."

Critics say though the stress tests appeared to partly achieve the goal of helping to rebuild confidence in the financial system, they may have also created a false sense of security about the health of banks, which is partly reflected in the stock market’s hearty comeback.

Then again, apparently I should consider changing my name to Cassandra. I've been saying that the stress tests were bogus for months now. The TARP Oversight panel is apparently saying just that.

The odds of Obama and Congress actually doing something about this? Nil. The banks are fine! It's a bull market! We should cancel TARP! We should cancel the stimulus package! You gotta get in on the V-shaped recovery! The doubters are wrong, shut up!

And the band played on.