Not a big deal and no surprises either:

http://www.spiegel.de/international/business/0,1518,708221,00.html

Dino

From the link you posted:

"A number of banking experts don't believe the tests' criteria was rigorous enough. Wolfgang Gerke, a banking specialist at the state-government sponsored Bavarian Financial Center in Munich, told public broadcaster ARD he was concerned "that what is being called a stress test here doesn't even simulate a real stress scenario."

What "stress test"? if they had done it using real life criteria, like the Americans did it, there would be not one bank in Greece, Spain and Portugal left standing. They would all have failed. Half of German banks would fail because of holding too much Greek bonds.

Nellieot:

Not true.

The way the Americans did it (in a form of a Hollywood production) was to give money to the banks in advance whether they needed it or not. They then provided liquidity at 0% from Fed funds and then declared that the test had revealed some issues, but the medicine had already been delivered.

Now, banks like Goldman Sachs and JP Morgan immediately said they did not need the money, but the US Fed said "you have to take it because otherwise some other banks will be exposed". It was nothing more than a giant accounting gimmick and a complete relaxation of FASB (generally accepted accounting rules).

Everybody and their mother knows that if the true FASB rules were reinstated today (they are still suspended) that almost all American banks will fail.

You have to understand that these are tactics and not strategy. All they do is remove an issue from the front page of newspapers and hope that time will cure the problem somehow.

Despite all the hoopla, there are already close to 300 American small banks that have failed and they keep failing (The FDIC announces them in groupings of 3-5 banks at a time almost after every Friday close of the markets, hoping that the weekends will give time not to overreact).

Now, with regard to the European banks let me tell you this. Give these banks new source of capital at 0% like the Americans did and even an idiot banker can make money.

The issue here is control. The Americans want to dictate to the Europeans the rules of the game and the Europeans are saying that they will address this issue under their own terms. The Americans are not pleased. They prefer a Europe that when the say "jump", Europe says "Yes Sir, how high?".

Dino

You said it--there are 300 American banks that failed and quite a few of them also failed the stress test. Only 7 European banks failed the EU stress test. What is this telling you? The EU stress test was not rigorous enough. The assumptions on which this test was based were too lenient. Most reputable economists agree with me.

If you want to know why the EU stress test is considered a joke by most economists, Google the assumptions with which they started. Something like 20% drop in the stock markets?!? We had in the US a drop of almost 100% at one point. The DOW went from 14,000 to 6,000 in a matter of months. It has not recovered yet, it is still at 10,000. Another wrong assumption--Greek bonds are assumed to drop only 20% !?! This is crazy talk! Everyone KNOWS that Greek bonds are worthless. In addition, most bonds that are worthless were not even considered in the stress test:

"most government bonds are held in the so-called bank book, meaning they are not intended for sale but will be kept until they mature. Bonds held in the bank book were not included in the test. Crucially, CEBS also did not include the possibility that an EU member state would go bankrupt and be unable to pay interest on its bonds, a scenario that nearly happened in Greece this year. "

This was no stress test, this was fuzzy wool to pull over the eyes of the public, to conceal the dire situation of European banks.

There were only 4 French banks tested ... And the test ... well you can call it a test.

At the same time we already had the 100th bank going bankrupt in America this year.
Nrs still raising.

How many banks were bankrupt already in Europe this year?

America ... While the banks are going bankrupt the states are going the same way.
And then Americans desperate shouting about Greece so nobody would start paying attention to them, because that would be not such a nice picture as the Greece picture.

Luckely there are rich Chinese in the world!

btw Nellie, Greece banks are not that much in troubles as you think. Greece government, yes. But that is such a tiny problem for Europe you could harsly call it a problem.

Not that Europe, especially Western Europe, is not in troubles.
But not half as much as USA.

Nelliot:

I am afraid you are missing the point.

The idea to stress test the European banks was an American one to begin with. Everybody knows that these stress tests are a joke (both the European and US tests).

The Americans are hung up on this idea of "global coordinated recovery" and are asking the Europeans to tow the line. If you break it down to plain English, a bunch of American baby boomers are concerned about the loss of value in their stocks and bonds and instead of blaming their own system of unleashing into the world a financial pollution of the first magnitude, they are instead preoccupied with European behavior asking for the adaptation of norms and procedures that might bring about a change of fortune for the American markets.


If you read carefully the Der Spiegel article, then you could see why Europeans attitudes are different. The German demographic is older and more conservative. As strange at it sounds, to make the Germans spend more one has to assure them about the stability of the system first. This is where fiscal discipline/austerity programs come in to the dismay of the Americans who would prefer that all world governments spend at this point instead of cost cutting.

You have to understand this is very frustrating for the Americans. After getting into trillions of new debt and leading the parade for awhile, they suddenly realize that the Europeans are not following. They are very frustrated because all the monies spent in the revival of the US economy (according to their Keynesian mind) look now misallocated and mall invested.

By the way, here is the complete EU analysis of the stress tests if you wish to dwell on them:(my personal opinion is that they are utterly useless regardless of intensity)

http://graphics8.nytimes.com/packages/pdf/business/cebs-summaryreport.pdf

Dino:

German business news is reporting tonight that so far this year, 103 American banks went out of business, seven added just this past Friday. In the last year, the 100 figure wasn't reached till October.

The government bailout was only to big banks; the little ones are folding. The crisis is far from past.

Bill:

I will check again on my 300 figure, which might include Savings & Loan types and smaller community banks.

As far as the crisis, you are 100% right. It is far from over; it's only beginning (paraphrasing a Churchill phrase: it's the end of the beginning with many more chapters to go).

The bottom line here is that the Germans are leading the economic engine of Europe and without Germany's willing collaboration there is nothing the Americans can do. These stress tests are useless anyway, because the situation is fluid and dynamic.

A stress test run today, may be completely off two months from now. Again, the Germans being superb engineers should be in charge of monitoring the situation on a daily basis.

Dino

"You have to understand this is very frustrating for the Americans. After getting into trillions of new debt and leading the parade for awhile, they suddenly realize that the Europeans are not following. They are very frustrated because all the monies spent in the revival of the US economy (according to their Keynesian mind) look now misallocated and mall invested."

I agree. The US government is full of idiots who know nothing. I don't condone Keynesian economics, I am a strong believer in the Austrian school of economics. The Americans are idiots if they think they can borrow and spend their way out of a financial crisis that was created by too much borrowing and spending. Austerity measures are long overdue in the US. There are too many entitlement programs and unfunded mandates that are unsustainable in the long range. The baby boomers have lost half of their retirement savings due to the drop in the stock market, but even so, there are billions of dollars sitting on the sidelines. People are unsure about what Oh-bummer is going to do next, so they are not investing. Same with corporations--they are not hiring because no one knows what a new hire is going to cost them in terms of health insurance and benefits. Everyone is waiting for the Obamination to get bounced out before they make a financial decision.

Nellie:

"I don't condone Keynesian economics, I am a strong believer in the Austrian school of economics. "

That's a funny part of my history. When I went to college, Keynes was tht "guru" of economics, and one of his books was our textbook. It didn't make sense to me, and I flunked the course. Keynes has since been discredited, and I've always been proud of the fact that I saw it was crap so early!

Bill:

Here is the list of US failed banks:

http://www.fdic.gov/bank/individual/failed/banklist.html


Again, Nelliot's point is not well thought out. He perhaps forgets that only the largest banks get tested and in Europe's case that include only 93 (or so) banks.

The American failed banks above perhaps they never got tested because of size.

What we need to be focusing on is the unsustainable level of global debts (both sovereign and private). There are basically two ways to get out of debt: (a) inflation (b) debt forgiveness.

Engineering the inflation route is grossly unfair to the average citizen and we should avoid it at all cost. This leaves debt restructuring as the only option by default.


There is also a very weak third way (The American model) which is to maintain this heavy debt burden and try to grow the economy to a point that the revenues outweigh the debts. Very risky proposition if you ask me because the levels of growth needed globally would require levels of consumption that would be truly phenomenal.

Merkel has already come the same conclusion as I, when she proposes these new rules:


http://www.spiegel.de/international/europe/0,1518,705959,00.html

Dino:

When I first read of the stress tests, my question was, "What will that prove?", and I still don't see what value they have.

Nellie has a valid point, too, and we see it here in Germany quite clearly. The government is so far in debt one wonders where they propose to get the aid money they're promising everyone and his brother. They think of raising some taxes and inventing new ones. The one thing which DOESN'T occur to them is to cut their own spending.

Almost every day I see reports that Chancellor Merkel is flying to some part of the world for a conference. Why the hell doesn't she stay here? Who's running the country in her absence?

Bill

"The government bailout was only to big banks"

The government bailout was to the labor unions (GM) and the idiots who bought houses they couldn't afford (Freddy and Fanny) and the criminally greedy (AIG). Most big banks took the TARP money as a favor to the Fed and as a precaution. Only CITI and Bank of America used any of it, the Wall Street investment banks who took it did not need it. All banks have repaid with interest (or are in the process of repaying) the TARP money. GM will never repay a penny of any government bailout. Quite the opposite--they will be back to mooch for more in a couple of years. These useless union parasites should be closed down ASAP.

Dino,

“These stress tests are useless anyway, because the situation is fluid and dynamic.”

This pretty much summarizes it all.

(BTW don’t get over energized on Nella, she is still unable to get over the fact that the North American bubble which Hitler built them some 60 years or so ago has burst and all the major opportunities now went back to Eurasia)

Dino

"Again, Nelliot's point is not well thought out. He perhaps forgets that only the largest banks get tested and in Europe's case that include only 93 (or so) banks."

Which of my points are you referring to?

By the way, I am female. "NellieotAmerica" translated to English means Nellie from America. "Ot" means "from" in English.