Why the stress tests really do matter

As rightfully reported, the stress tests will paint some investors into an economic corner.

However, the Administration has painted themselves into a political corner with the stress tests.  The stress test has in effect limited the options the Administration has for dealing with undercapitalized banks.

Finally, the "leaks" coming from Treasury, regarding information of the upcoming public announcement of the stress test results, are akin to insider information being disseminated.

in the words of a great American leader from over 200 years ago written to the Secretary of State “The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

Folks,

Let’s stop pinning to tail to the Donkey (sort of speaking). This financial situation is the doing of all who participates in the free market system. Our economy can be related to the scales of justice. As long as they are balanced there is sufficient liquidity and control. However, when the scales tip to fare to one side the economy will falter.
            Financial institutions are like people. When they see an opportunity to make money they will take the risk. In this case they did it with projected profits from toxic assets. Assets they knew were very risky. I understand that risk because I am in business, and risk is an element I deal with daily. However, prudent decisions are to ensure the long-term viability of the organization. In the current situation I believe the long-term strategy of the financial institutions as a whole, (some regional and local institutions still hold to low-risk management) was to make quick returns at the risk if long-term viability. These institutions got caught up in loaning a 100% plus on homes and other ventures, insured each other risk, and failed to due diligence in the validation of the market value on the toxic investments they currently hold. Bailing them out is not the complete answer, though some government financial intervention will be necessary.

I propose a strategy by-which the taxpayer gets some direct relief. Require more openness and regulatory oversight. And force those institutions that have not managed well to fail. Taxpayers are asked to bailout the institutions through government infusions of capital. So be it! However, require those institutions to revalue the toxic loans and write off the inflated value. Additionally, require all these loans interest rates to be written down to the prevailing interest rate or a fixed rate based on the new valuation.

You may say who eats the loss: The financial institutions, because they allowed these loans to occur. This approach will reset to value of assets to market price and has the benefit of allowing folks to pay for assets at what should have been the true asset value. A side benefit to this will be an infusion of disposable income at the consumer level. These folks will spend, the economy will grow, new jobs will be created, and stability will return to our economy.

I encourage each person to get involved in this debate and communicate with your elected representatives encouraging them to do something that brings direct relief to those consumers that are caught up in this mess.

 A note of caution, similar action need to occur with credit cards because the availability of consumer credit is to easily obtained, and the interest rates are absolutely out of control.

somehow the stress test gives the impression it is just a formality as disclosing details of the banks financial sheets remain a sensitive issue.

it is high time that both parties (bankers and politicians) should put aside their differences and work together to tide over this crisis.

Prolong squabblings, conceal of details, procrastination etc will not benefit the recovery of the global economy.

It has been quite a few months since the crisis hit and decision makers should ask yourselves have things been moving on or stagnanting?