Friday, 15 July 2011

08:09 – For the third time in four years, European banks are undergoing a so-called “stress test”, the results of which are to be announced at noon EDT. No one really believes the test results will reassure anyone, although they’re hoping for the best. During the last such test, Irish banks passed with flying colors only to collapse and be taken over by the government shortly thereafter.

This test is supposed to be much more rigorous, but it’s still nowhere near rigorous enough. It assumes, for example, that Greek debt will lose 15% of its nominal value, while in reality it has already lost at least 50% of its value and will soon lose the rest. The test also assumes that none of the Eurozone countries will default, even partially. Despite the ridiculously unrealistic rosy assumptions made by this test, between 10% and 20% of the tested banks–the 91 largest Eurozone banks–are expected to fail the test and essentially go into government receivership. The problem is that if the tests were actually realistic, all or nearly all of Europe’s banks would fail and the entire Eurozone economy would quickly collapse.

The timing of the announcement is no coincidence. It will be released at 4:00 p.m. London time, after markets have closed for the weekend. When the bell rings Monday morning, I expect to see frenetic activity, and not in a good way. Next week may be remembered as the week the Euro died.


Lab day today. I have a couple dozen lab sessions for the biology book in progress, and I need various reagents and stains before I can actually run them. Actually, I already have most of those on hand, but I purchased many of them rather than making them up myself. I don’t want to use purchased reagents and stains to test the lab sessions, because they’re not necessarily the exact solutions that will be in the kit for the book. So, for example, rather than use the purchased 25 mL bottle of Gram’s iodine stain that I have on the shelf next to my microscope, I’ll make up some Gram’s iodine to a known formulation that I can reproduce later for inclusion in the kits. Actually, one lab day probably won’t be enough.


12:14 – Well, the results of the so-called “stress test” are in, and they’re pretty bad. Of the top 91 European banks, eight flunked what should have been a gimme, and another 16 barely squeaked by. That’s pretty damned pathetic, given that the test specifically excluded the stuff that would make the banks look bad. The whole purpose of this dog-and-pony show was to make the banks look as good as possible, to restore investor confidence. The result is going to be exactly the opposite. Even with training wheels, eight of the banks toppled over, and 16 more nearly did so. Investors aren’t stupid. They’ll see this charade for exactly what it is. Wait for the opening bell on Monday.


13:08 – More good sense from Pat Condell.