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A Head Problem and a Heart Problem

03/14/2012

Suppose, God forbid, that the stock market drops 50%.  Suppose unemployment rises from 8.3% to 13%.  Suppose home prices drop another 21% from already depressed levels.  And, suppose this all happens by the end of next year . . .

The Fed just announced another round of stress tests for major U.S. banks.  Generally, the results were surprisingly good, with only four banks failing to maintain adequate capital under such dire conditions.  The Dow rose a hundred points on this news.

Intellectually, this test doesn’t give me the confidence that it gives to Wall Street.  The Fed did not attempt to identify and isolate which banks are vulnerable to a derivatives blow-up.  Maybe, it is just too difficult to measure that risk, but it is analogous to a doctor doing an annual physical on a patient and forgetting to check his heart.

Emotionally, it makes me sad that SunTrust was one of only four banks who flunked the test.  Having retired from there and accepting a pension check from them every month, I would like to be proud of them and my past association with them.  But, by the time of my retirement, I felt the bank wasn’t as good as the many good and decent people who worked for them.  Now, I know I was right!

Still, I’m sad . . .

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