Tuesday, February 10, 2009

It's the "Uniform Stress Test" Stupid!!!

The morons on CNBC are in a full tilt panic to explain why the market sold off following the Geithner speech at 11am ET. CNBC is reporting that the "lack of details" in the package has caused the selling pressure. Wrong! Larry Kudlow, who has been permanently wrong for the last 10 years, even suggested that the speech was a "total disaster" and that the only way to turn the market around is to do nothing but cut taxes more. Wrong!

The financial stocks were weak ahead of the of speech on concerns that the "uniform stress test" could end up triggering a government seizure and liquidation of several large banks. Remember, the heart of the problem in the banking sector is not simply that a lot of the banks are technically insolvent. The problem is that most bank executives and shareholders have not been willing to admit it and government regulators are not forcing the point. The uniform stress test may be a way for the Obama Administration to force the point and provide political cover from the morons on the rightwing that claim the end of the world will arrive if Shittybank is nationalized and liquidated.

Private capital is extremely fearful of a zombie financial sector because it will be more difficult to establish a floor on the toxic assets if institutions that need to be liquidated are kept alive on the taxpayer’s dime. Establishing price discovery without inflicting pain on the stakeholders of the deeply troubled institutions will be impossible. The key question investors are currently asking is which institutions are likely to fail the “uniform stress test?”


Bronwyn said...

The mainstream media is without a doubt the enemy of truth.

artrush said...

Great stuff.