Let's start with their GDP assumptions. Here is the chart of their baseline and more adverse GDP projections:
I'm assuming that "4 quarter percent change" is the same as year over year percent change. Notice the economy is already performing worse than expected in the GDP stress tests.
The current unemployment rate is more in line with the worst case scenario
The Fed's worst case scenario of home prices assumes a 22% year over drop this year. That is -- in December of this year prices will be 22% lower than in the 4th quarter of 2008. Prices are already falling at a roughly 18% year over year rate in February. Lots of people were excited when the Case Shiller number didn't set a record low in the latest report.
So
GDP is already performing more poorly than the Fed's stress test.
The worse case scenario for unemployment is the most realistic possibility.
Home prices are already closer to the Fed's worst case scenario than the median baseline forecast.
Bottom line: the worst case scenario is the most realistic scenario.
2 comments:
We are gonna be so screwed come 3Q2009 and the Fed realizes these bozos need more money. To be a real stress test, the Fed should have looked at what would happen in a condition of 12% U3 unemployment. Of course, they already likely know the answer just not how big the number is. All of the banks need fresh capital at that level and only the Federal government has the resources large enough to provide it. We're all gonna be nationalizing come October.
So, why is no one proposing that these stress tests be run every 6 months and the results updated?
This might go a long way toward more transparency in banking.
Post a Comment