On The Eve Of The European Stress Tests: A Q&A With Goldman Sachs On Tomorrow's Prime Time Event
As the world focuses its attention on Europe where tomorrow at 4pm GMT (the idea of an earlier release was scrapped) the results of Stress Test version Europe will be released, there are two types of pundits: those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, yet due to billions of dollars in vested interest are preparing to put on a cheerleading show that would leave the Laker girls green with envy; then, there are those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, and as a result refuse to even look at them due to advance knowledge they are nothing but a systematic farce which should achieve nothing, yet will likely provide a sufficient excuse for those who lift every offer regardless of cost to send the market to A. Joseph Cohen giddyness levels (at least if our own experience with stress testikng is any indication). Needless to say, we fall in the latter category, and would be more than happy to deconstruct these tests, if only the criteria were publicly known in advance! So for those who actually do pretend to care, here is a Q&A with Goldman Nick Kojucharov in which the Goldman analyst discusses the ins and outs of the Stess Test. And since it has been leaked that the only bank which will fail is Germany's permabankrupt Hypo (even as the Cajas, Landesbanks and Greek aluminum shacks with a backyard vault and a repo line to the ECB, all pass), the only part of the Goldman report that caught our eye was the following: "There is obviously the risk that if too many banks pass and do so with a comfortable margin, the test may be judged as too easy to have actually been informative about the strength of the banking system, and markets may not draw any new comfort or optimism from the exercise."
Instead of listening to the idiots on TV, we will instead keep a close eye out on LIBOR, Euribor and EONIA: these will present a far better picture of true state of affairs in Europe than any farce of a test ever could.
From Goldman Sachs: "On the eve of the bank stress tests"