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cowgal's picture
Location: Colorado
Joined: 03/10/2002
Posts: 1787
Bank stress tests are baloney

Good article on why the bank stress tests and having politicians involved in our banking system is a huge problem.

Quote from above link:

"... two things are disturbingly different about the tests now being overseen by Obama's embattled Treasury secretary, Tim Geithner:

- First, politicians are involved, a no-no to banking regulators.

- Second, after some initial reluctance, the administration will release results. In government, openness is usually a good thing. But it's rare in banking regulation because even speculative results can create turmoil in the market.

To avoid turmoil, the Obama administration may end up whitewashing the results to say the banks are mostly OK. Or it might keep the released results so vague as to be meaningless.

Historically, regulators try to stay insulated from politicians. "Only bad things happen when politicians start getting involved with the bank regulatory process," says William Isaac, who led the Federal Deposit Insurance Corp., one of the three main federal bank regulators, from 1978 to 1985.

Sooner or later, politicians try to pressure regulators to go easy on banks run by friends or to put a bank out of business if it competes with one run by their friends.

But with the White House and the Treasury chief now so directly involved in the stress tests, "we are politicizing it in a way that I find terribly discomforting," Isaac says.

Isaac tells me that regulators he talks with are "extremely uncomfortable" and that "most bankers think it is loony."

Basically Obama and his team are micro-managing and sticking their noses into areas they know nothing about. They should be allowing the regulators do their job.