Roubini Says Stress Test Data Overstate Macro Econ Health

Update II: As those elitist liberals hash out how to avoid a depression, the GOP and its leading journals, Human Events for example, are busily at work solving the real problem: Investigate NOW The Compelling Evidence That Barack Obama Was Born In Africa! Tea anyone, perhaps some Kool-Aid? [Photo by Russell Wallace taken at the state capital TEA Party where some 3,000 white people gathered to protest anything not Republican.]

Update: Paul Krugman in his column in the Times sums up a note of optimism, after expressing similar concerns of Nouriel Roubini's in the piece below: Krugman believes that Obama administration economists understand the imperative of: "Persistence." Without writing it, Krugman is suggesting that the GOP TEA set should not deter the course for economic recovery. In other words, ignore the fools and press on.

It's not Nouriel Roubini's (Dr. Doom) job to make us feel good. Good thing. [By the way, you can get a free subscription and access to Nouriel Roubini's Global EconoMonitor and you should consider it.] Roubini calls the stress tests "fudge tests".

On Nouriel Roubini's Global EconoMonitor, Nouriel explains that actual macro data for 2009 are already worse than the more adverse scenario in the stress tests. The actual macro data for Q1 on the three variables used in the stress tests – growth rate, unemployment rate, and home price depreciation – are already worse than those in FDIC baseline scenario for 2009 aand even worse than those for the more adverse stressed scenario for 2009.

Check out: Stress Testing the Stress Test Scenarios: Actual Macro Data Are Already Worse than the More Adverse Scenario for 2009 in the Stress Tests. So the Stress Tests Fail the Basic Criterion of Reality Check Even Before They Are Concluded ...

Conclusion: Actual macro data for 2009 are already worse than the more adverse scenario in the stress tests. These are not stress tests but rather fudge tests

This financial crisis was one due to opacity and lack of transparency in financial markets and due to regulators that were asleep at the wheel. But now the administration officials and regulators have decided to add to the fog of opacity by adding to the lack of transparency in financial markets: regulatory forbearance that allows banks such as Well Fargo to declare charge-off rates and to set aside reserves for loan losses that make no sense relative to the state of the economy and relative to their loan book; partial suspension of mark-to-market accounting that allows – starting with Wells Fargo – to hide losses and reduce the amount of write-downs on securities; likely reinstatement of some variant of the uptick rule that will restrict shorting of stock and will artificially boost equity prices (a form of legalized manipulation of the stock market by regulators that are trying to prevent short-sellers to do their job, i.e. make stock prices reflect fundamentals and prevent bubbles in stock prices); and now stress tests that fail the basic test of a reality check by making assumptions – that even in the worst case scenario that is designed from start to be too mild to be a sensible realistic stress test scenario – that are obsolete based on actual data for the economy as of Q1 of 2009. Call it a generalized 'fudge test' rather than a true 'stress test'.