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Black: Stress tests and the Big Lie

I found this story and video of Bill Black on Tech Ticker (hat tip Larry Doyle). Basically, Black thinks the stress tests were a joke, a common theme heard from those in the know. Listen to what he says about a really difficult stress test we gave Fannie Mac ten years ago.

Results of the stress test brought a collective sigh of relief from Washington D.C. to Wall Street Friday, and stocks were rallying again on a growing sense the financial crisis has past. Don’t you believe it, says William Black, an Associate Professor of Economics and Law at the University of Missouri – Kansas City.

“It’s in the interest of the financial community to send this propaganda out,” Black says. “It’s remarkable not that they do it but that it still works.”

In other words, this isn’t the first time we’ve been told “the crisis is over” and that “banks are well capitalized” – and probably won’t be the last.

The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government’s $599 billion estimate.

Simply put, the stress tests weren’t strong enough to be considered “wimpy,” Black says. Furthermore, Fannie Mae, Freddie Mac, AIG and IndyMac were deemed to have “passed” much more stringent government stress tests before their respective failures, he notes, recalling the grim history…

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.