Bank stress tests point to false hope

| May 8, 2009 | 1 Comment
Bank stress tests point to false hope

The current optimism in the financial markets is being further encouraged by the release of data on the stress-tests for US banks.

Unfortunately, we’ve become so used to seeing eye-watering high figures in news about banks that somehow the news that at least $75 billion more is required is somehow comforting. It’s worth remembering that initial reports into the credit crunch expected losses of only $100 billion.

The trouble with current market optimism is that too many people are looking at the immediate term conditions than the historical precedent.

Despite continued reporting that this is the worst economic crisis since the 1930′s Depression, few are looking at the historical record of that depression - which included 3 of the biggest rallies in the history of the Dow Jones.

All false starts - we had one last April, and now we’re enjoying one this year as well.

In the meantime, don’t expect long term steam built into the current rally, because there are absolutely no positive economic fundamentals underpinning them.

In fact, false hopes and spin are all that optimism is being based on.

It’s a clear warning sign that the only reason banks aren’t sinking further is that they have managed to catch a wave of profits from the current big bear market rally, helping drive profitability among their investment arms.

However, behind that smile, is the reality that in their retail and commercial divisions, loan impairments are growing at an alarming rate. Financial conditions for consumers in our consumer-driven economies are not getting better - they are getting worse.

Perhaps the most blatant piece of spin we’ve seen this week is Bernanke’s comment’s that of the stress-tested banks “all are solvent”. So solvent that they required a multi-trillion aid package just to keep them afloat.

Anyone who thinks the worst of the credit crunch is over is simply comparing the current crisis to the last recession. For which, as all the bare facts declare, is no realistic comparison at all.

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  1. Mark Harrison says:

    I think you are right, even at the end of June we are seeing no new signs of growth or stability whatsoever and if anyone thinks there are glimmers of hope on the horizon in the near future then they should think again.The credit crunch will be with us for a long time yet.
    I like your blog layout btw! Best one I have seen in the finance world.

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