Bank Stress Tests

April 21, 2009

U.S. stocks suffered their biggest losses today since March 9, led as then by banking shares.  A contributing factor to the plunge was a blogger report from the Turner Radio Network, claiming that a copy of the stress test results in its possession concluded 16 of the 19 largest banks to be effectively insolvent.  TRN is a strange source to break such news, and one cannot be sure that the claim was not  a hoax.  Hal Turner, who founded TRN, has mainly been associated with the views of the Far Right, and yesterday was the 14th anniversary of the Oklahoma City bombing by Timothy McVeigh to avenge Ruby Ridge and Waco.  The tragedy of Waco had indeed also occurred on April 19th, a dozen years earlier in 1983.  If TRN’s allegations were fabricated, the market’s deep sell-off confirms a lack of confidence in the banking system and measures that are being taken to keep the sector from unraveling.  If the government stress test report next month has a more optimistic tone, the markets are apt to suspect a whitewash of the true results.  If the Treasury Department, which today denied that its study has been completed, eventually corroborates what TRN leaked, today’s market reaction will be replicated in spades.  Many analysts have been saying that the only exit from the banking system’s zombie state would be widespread nationalization of the major money center banks, as was done in Japan.  What happened to Japan should not inspire hope.  The conventional wisdom that Japan was able to turn the corner only after nationalization and disposal of toxic bank assets is misleading.  Japan still hasn’t returned to the kind of economy it was before 1990.  A few better years earlier this decade were manufactured by an undervalued yen and very strong demand from Japan’s Asian markets.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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