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Mike Rorty Builds His Own Stress Test

Two days ago, I echoed Felix Salmon's complaint that the stress tests omitted the "baseline scenario" data, which made it impossible for analysts to use the estimates to conduct their own models.

Well, almost impossible.

Mike Rorty, employing statistical ninjery that I don't even want to try and describe, has built his own model. It's a bit crude, but it's far and away the best I've seen. And its results are striking. Imagine that unemployment in 2010 is not 10.3 percent, as the stress test's "adverse scenario" predicted, but 12.5 percent. What happens to the banks?

For most of them, precious little. But a few of them fall deep, deep, deep into the red. This graph tells the story:

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Yikes. Bank of America is the real shocker here: They require an extra $100 billion in cash. And it's very hard to imagine them raising that on the private market.

By Ezra Klein  |  June 12, 2009; 9:26 AM ET
Categories:  Financial Crisis , Solutions  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Has Kent Conrad Solved the Public Plan Problem? An Interview.
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Comments

Interesting how Wells Fargo is desperate to return TARP funds in spite of the fact that losses are possible.

This is ridiculous. Now everybody who's too big to fail knows exactly who they are. They are keeping all the Fed-funneled-funds while giving back the money that isn't in the form of a blank check.

Because they know that if they fail, they can go back for money any time.

Ridiculous. All we've done is establish that Wells Fargo's debts are guaranteed by the taxpayer.

I have GOT to get into this business. I play with other people's money and if I do well, it's all mine. If I lose it, it's the little guy's problem. This is awesome.

Posted by: theorajones1 | June 12, 2009 11:01 AM | Report abuse

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