Stressed Banks Need No Test

Today the new Treasury Secretary, Tim Geithner, unveiled the administration’s New & Improved but remarkably non-specific plan to save the banks from themselves. It is simply more of the same throw-money-at-the-banks strategy the Bush team tried last fall. It didn’t work then, and it won’t work now.  Initial market reaction can be summarized as “Thumbs Down.”

This would be funny if the stakes weren’t so high. Consider Geithner’s idea to submit banks to a new “stress test” to judge their financial stability. Stress test? What does he call the last six months?

In fact, there has already been a giant “stress test” and the banks all failed.  If they could not survive without government (i.e. taxpayer) assistance last fall – which most could not – then there is no chance they will survive the even more painful scenarios Geithner claims he will test.

In other words, there is no need for another test.  We already know that none of the large banks will pass any stress test worthy of the name.   If they do pass, it will be because the test is rigged and/or the banks are cheating.   No one should take any comfort from the results.