Wednesday, November 17, 2010

On More Bank Stress Tests

Regarding the just announced 2nd round of stress tests for the banks, I have but one rhetorical question:

If a loss falls on a bank balance sheet, but no one is there to mark it to market, does it affect their capital?


ps - In case it wasn't painfully obvious, I'm channeling my inner "If a tree falls in the forest and no one is around to hear it, does it make a sound?"

pps  - Banks are currently holding a metric crap ton of mis-marked home equity loans and second mortgages.  Unless the stress tests plan to treat these bad loans realistically, Stress Tests Part Deux will be a total farce.


Anonymous said...

I'm long farce.

Kid Dynamite said...

long farce vs short truth?

Anonymous said...

The problem with your Tree analogy KD is that even if there were someone in the forest to hear the tree fall, the tree still did not make a sound. When a tree falls some of the energy is converted into vibration of media like air and ground. Ie, they shake. Some of those vibrations can impend on a human or sound sentient creature whose nervous system then Creates the cognitive phenomenon called 'sound.' See?