The Bank Stress Tests

While working earlier this morning, I listened to a couple of guests on CNBC debate the consequences of the federal government's bank stress tests.

The overall sentiment was that these tests were politically motivated to begin with, a bad idea, and a poor substitute for proper, existing and regular bank examinations.

I concur.

Is it really a shock that the feds want banks to raise capital? And, of course, they would love the convenience of the banks, such as BofA and Wells Fargo, begging to be allowed to convert federal preferred stakes into common equity. What a rich irony.

In truth, though, the federal government is subverting the capital markets. Left to their own devices, investors would, though trading, establish objectively-determined prices for these banks' equities.

Maybe it's me, but won't it be more difficult and expensive for banks painted with a federally-applied big red "I," for 'inadequate capital,' to issue additional equity? Isn't it almost a self-fulfilling prophecy putting these banks on the road to higher levels of government ownership?

I can't see a single positive aspect of the so-called stress tests for banks, other than another tool for government to coerce and intimidate private sector firms.