Unemployment Rate Already Surpasses Bank "Stress Test" Assumptions
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Today's unemployment number of 8.5% means that the nation's current unemployment situation is already worse than the government's 8.4% "baseline scenario" in the "stress tests" being conducting on banks.
With 9 more months of job cuts to go, the government's "adverse scenario" of 8.9% unemployment looks like it too will be easily surpassed - maybe as soon as next month.
If we are already above the assumptions that are being used to "stress" the bank's balances sheets then what good are they? When the results come out, saying this bank or that bank passed (or more likely didn't fail), what does it mean? Are the banks safe? Not necessarily, because the assumptions are too pollyannish so the whole test becomes irrelevant.
With 9 more months of job cuts to go, the government's "adverse scenario" of 8.9% unemployment looks like it too will be easily surpassed - maybe as soon as next month.
If we are already above the assumptions that are being used to "stress" the bank's balances sheets then what good are they? When the results come out, saying this bank or that bank passed (or more likely didn't fail), what does it mean? Are the banks safe? Not necessarily, because the assumptions are too pollyannish so the whole test becomes irrelevant.
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