Bank Stress Test

The Government released results to the major banks and the guidelines to the rest of us related to the stress test. Predictably, there will be those who feel the test isn't tough enough and that the Government is sugar coating the results to calm the public. Any test like this has a major flaw, what is the right criteria. Keynes was the one, I believe it was Keynes but I may be getting senile, that in the long run we are all dead. Any stress test can be geared to a level that it become impossible to pass. Any test that the banks pass can be considered too easy.

The scenarios of the test were intended to look at the lower end of the current predictions of the economy for the next two years. There are of course those who predict a complete collapse of Western and I guess Eastern civilization and if you consider that the worst case, there is no money and we better stock up on canned goods. The "worst case" scenario the Government used is of course not that one. However since no one really knows where the economy is going t go over the next two years, what is probably more important is the current health of our financial institutions.

I see markets developing for bad loans, valuations starting to be created and potentially small signs of increased economic activity. Considering economic lag, there will be some industries going into recovery while others are still getting worse. However, I'm not going to fill my basement with canned goods and bottled water (unless of course there are some really great sales) just yet.