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Apr 9 / Jonathan

Geithner’s Stress Test “A Complete Sham”

Barry Ritholtz.

Geithner’s Stress Test “A Complete Sham”

The bank stress tests currently underway are “a complete sham,” says William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri – Kansas City. “It’s a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough.

He detailed these and related concerns in a recent interview with Naked Capitalism. But Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis, says the program’s failings go way beyond such technical issues. “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian.”

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