In the financial markets, perception and reality are not always the same thing -- and nowhere is that more obvious than in the public debate about the underlying health of the banking system. There are basically two camps of pundits -- those who take Timothy Geithner and the big banks at their word and believe that we really are on the path to financial stability, and then those who think that a lot of smoke-and-mirrors are obfuscating the real problems within the banking industry.
Andrew Ross Sorkin of the New York Times, for example, thinks that bank profits are "appearing out of thin air." The "magicians" on Wall Street can make any number they want appear out of a hat - presto! - whenever they need it to -- especially during earnings season. Which leads, of course, to the question over the bank stress tests, with results due up at the end of April:
"If the stress test is done honestly, it is impossible to believe that some banks won’t fail. If no bank fails, then what’s the value of the stress test? To tell us everything is fine, when people know it’s not? “I can’t think of a single, positive thing to say about the stress test concept — the process by which it will be carried out, or outcome it will produce, no matter what the outcome is,” Thomas K. Brown, an analyst at Bankstocks.com, wrote. “Nothing good can come of this and, under certain, non-far-fetched scenarios, it might end up making the banking system’s problems worse.”
So what do you think: How stressed should we be about the bank stress tests?
[image: Timothy Geithner via Business Pundit]
