I'm not sure if the Fed used super computers or took wild guesses, but I can say right now nobody involved ever took Psychology 101. If there was a classic meltdown, the American public would have to come to the rescue again. Yes, too big to fail only became more problematic as the bigger banks have only increased in size and risk to the general public. I think the government was more concerned with finding ways to siphon money from banks than anything else.
Of course, that's the same story with all the mean industries.
Here's the scenario over nine quarters ending in 4Q14:
> Stock market plunges 50%
> Housing freefalls 20%
> Banks losses mount to $462 billion
But, all would be well, there would be mild runs by depositors, but those institutions would hold like pillars.
Yeah ... right!
There would be mass chaos and blood on the street. Heck, in 2008, the Fed funneled $1.2 trillion in loans to banks on the sly and only came clean after losing a court decision. The banks would crumble under a repeat of 2008-2009.
It's too soon to worry about the banks failing, but that stress test is bogus, and after they finish lavishing themselves with billions in stock buybacks and dividend hikes, we might get some lending to Main Street. Perhaps, as that needle moves, we could then start to watch the building of a feeding frenzy.
This whole thing was an exercise in blowing smoke, and I don't think the public is buying it. Sure, we'll all play the game and act stupid or suspend disbelief for the sake of not missing out the run up that would have to proceed such a devastating correction (think Dow 16,000), but do us a favor and stop the games and lend some money!
Okay ... Maybe the Apocalypse is near
I know they've been around for a couple of years, but this spring they will be everywhere- open toe boots!
Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs. Respect | Mike Shedlock