I have long wondered why bak stress tests seem so easy to pass. In 2008 it was clear it was the whole banking system that was under threat of collapse. There were, undoubtedly, weaker links but even those banks that smugly survived without injections of new state capital only did so because others were bailed out. The injections were always into the system as a whole, not just the individual banks.

But now we know the microeconomic siloed thinking that sees each entity in a market as a an individual, standing or falling on its own, and not part of a networked whole, has invaded the logic of those checking that ‘it can never happen again’. Except that, as their poverty of analysis shows, it would be all too easy for it to do so.

The curse of mainstream microeconomics continues.

Everybody recognises that it is the system, not the individual banks, that is at risk. That’s why we call those too large and systematically important banks (over and above the clue provided by “systematically important” there) too big to fail banks.

The entire fucking analysis revolves around the system, not any one bank.

16 thoughts on “Dear Lord”

  1. ‘systemically important,’ (relating to a system, especially as opposed to a particular part) not ‘systematically important’ (done or acting according to a fixed plan or system; methodical).

  2. Yes, probably, although that’s not (I think) how it’s usually referred to in banking circles.

  3. Does he ever refer to the banks that have failed said tests and have been ordered to shore up their balance sheets? RBS for one.

  4. And nothing whatever to do with Gordoom’s brilliant plan of removing the oversight of the banking industry from the BoE to his mates at the FSA.

  5. “but even those banks that smugly survived without injections of new state capital”

    Every month I make my mortgage repayments without fail and all my other debts as well; how fucking smug could I be eh?

  6. I read in a book (Why I left GoldmanSachs) that Goldman was one of these banks that didn’t need the bailout (because their debtors were bailed out) but the US government told them everyone had to take a bailout anyway so no individuals stood out to blame and others couldn’t be smug cunts (or something like that).

  7. Henry Crun said:

    to his mates at the FSA.

    Mates, and former bankers. Poachers who would struggle to catch roadkill turned into incompetent gamekeepers.

  8. I once attended a creditor’s meeting of a company that had gone under leaving a lot of small trader suppliers seriously out of pocket ( “‘Phoenix’ is the colloquial term). I joined the committee and basically recovered not far off the lot from the thieving directors. As a result those small traders were able feed their kids; smug bastards.

  9. If the cretin knew what actually went on in academia, he would know that there are lots of people trying to work out the network effects. The problem is that these problems are seriously complex

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1280788
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=556944
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1773964
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2248624

    Since the accountant does not even understand basic accounting or tax, it comes as no surprise that he does not understand economics.

  10. Well, yes, but (amazingly) he does have a point. All this bank stress test stuff is just wank. Its just pretending that everything’s fine, when the reality is that no-one really knows who would fall over if the shit hit the fan again. Maybe a good guess at who would go first, and what the order would be, but how far down the line of dominoes it would go no-one is sure, or if any would be left standing.

  11. Jim

    Some bank stress tests are just wank, others are not. Although we cannot be certain about who is most exposed to what, the simulations do test “worst case scenarios” in many cases. Stress tests that take place during crises always suffer from the need not to provoke panics and thus are particularly guilty of being wank. Some regulators are not very competent (FSA anyone?), but at the moment things are better – because regulators have been stressed themselves.

  12. The stress test that I suspect he would want is: “if every other bank goes broke, will you be OK?”

  13. I once attended a creditor’s meeting of a company that had gone under leaving a lot of small trader suppliers seriously out of pocket ( “‘Phoenix’ is the colloquial term). I joined the committee and basically recovered not far off the lot from the thieving directors. As a result those small traders were able feed their kids; smug bastards.

    In the context a phoenix is when a new company rises from the ashes of the insolvent company, often owned by the same person / people and carrying on the same business, leaving it’s creditors out of pocket. It’s not merely an insolvent company.

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