reggie_middleton_flying_swords_to_behead_the_financial_villains.jpgBelieve it or not, the TRUTH can and will set you free - or get you locked up. I guess it all really depends on the perspective. You don't necessarily need swords and daggers to cut to the truth. I normarly use spreadsheets and forensic analysis, although every now and then a Katana or two doesn't hurt.  

Extensive Simulated Government Stress Tests Released!

I'm putting some more truth out today. Here is the first of a series of the government simulated stress tests that we have completed. This is normally high level subscriber-only material, but since these tests are so widely anticipated, I thought I would give the world a taste of what we do behind closed doors.

Be aware that I don't necessarily agree with the methodology and assumptions of the government's version of the stress test. For one, they don't risk weight earnings, only assets. Some of the investment banking operations take significant risks to generate earnings (see "Goldman Sachs Banking Secrets Mr. Geithner May Not Share With You! ), and these actions pose significant risk. In addition, I believe that the "stated" assumptions are much too lax to be considered a rigorous stress test, eg. unemployment is already higher than the baseline assumed unemployment. I do not know if the government modified its assumptions in the actual implementation of its tests. I have rectified the problem by creating a scenario analysis that covers multiple assumptions, thus the readers can decide for themselves which set of assumptions to use.

I stress, evaluate and value companies differently, thus my internal forensic analysis may very well bear different results than these government simulations. That being said, these are simulations and not necessarily an attempt at getting to the truth, the whole truth and nothing but the truth - just the government's version of the truth. Do you remember what Jack Nicholson told Tom Cruise when he asked for the truth in "A Few Good Men"? He said, "The TRUTH! The TRUTH! You can't handle the TRUTH!!!!". Well, in my opinion ladies and gentlemen, the TRUTH is that quite a few of the banks that are the subjects of my analysis are insolvent. That's just my opinion, but I actually believe that my opinion is money good.

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