Obama ordered stress test for the banks. He wanted to see if they can weather the storm if economic conditions get worse. The results of the bank stress test are out. Ten of nineteen of the biggest banks now need to raise another 75 billion dollars in capital. The guidelines of stress were the following: 1. Contraction by 3.3% of the US economy this year and flat in 2010; 2. Continued fall in housing prices; 3. Unemployment goes up to 8.9% this year and 10.3% in 2010.

This whole stress test thing is a policy move. It does not show if the banks can withstand great losses. Rather, it is simply a political move to shore up our faith in the system and to continue private ownership. They want us to believe that there is no move to take over the banks. The Obama administration is not interested in testing the real stress banks face, but to restore public confidence in the banking system. The treasury et al says outright that they want to increase our confidence in the banks by insuring that they are adequately capitalized in case we see a worse economy. Obama wants us to believe the banks have the money they need. Critics charged that the administration wants to make the banks look like they are in good form, when they really are not. Why? Because we are already at some of the stress levels: unemployment already hit 8.9%. We should be looking at double digit increases now and next year even higher numbers. In addition, private economy experts already expect this to happen. Housing values etc could actually worsen yet. The Obama government’s expectation for the future economy is too optimistic. The test is not severe enough to really tell us anything. We should have tested a series of worse case scenarios. Nancy Bush, of NAB Research, LLC, said it should be”onerous” but it really is not. The test outlined, and economic expectation, is way too rosy. Government forecasters have underestimated how bad things will really get. Are you shaking in your boots yet?

We have used already 350 billion of the monies slotted for the financial bailout last year. The government will need more. Obama will have to approach The House again. This should turn out into a great public outcry—maybe this time they will be heard. While the Obama administration tells us that they are not really interested in nationalizing the banking system, their moves belie the talk. FDIC is tells us one thing and the government does another. Why are they converting a preferred stock in a bank that pays 8%, to common stock that pays US taxpayers nothing? Why is Citigroup getting a new dollar infusion from our Uncle—and the government getting 40% of its stock? The moral hazard has been violated.