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Friday, April 24, 2009

Stress tests are probably meaningless ( #BANKS $BAC $C $JPM )

The Fed wrote down 28-38% of the value of their Bear Stearns mortgage portfolio.  The rest of the banks are carrying the same securities at 90+% of their face values.  Who’s zooming who?

Fannie and Freddie saw mortgage delinquencies rise 50%. 

Banks are carrying most loans at 90+% of their face value.

If the stress tests don’t make real assumptions about the starting capital, how can they really diagnose the banks in a theoretical environment of deterioration?  If their portfolios drop another 5% does that force a 5% markdown or a 30% markdown to catch-up to reality?

It’s hard not to be cynical.

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