The markets don't like this stress-testing either

Ok, interesting...

http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-$pd20090224-PJS5Z?OpenDocument&src=sph
The markets had a bad day on Monday, they weren't convinced by the whole "stress-testing" thing either, it seems. Here's why:
http://www.informationarbitrage.com/2009/02/citigroup-the-difference-between-dramatic-action-and-drama.html

http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-1-US-regulators-stand-ready-with-more-bank--PJJYZ?OpenDocument
http://www.bloomberg.com/apps/news?pid=20601087&sid=a94Scjej8WNs&refer=home
So basically once these stress-tests are done, the government money will be provided as follows:

1. The banks issue convertible preferred shares to the government.
2. If the stress testing shows a problem, the amount of needed capital is determined and that amount of these preferred shares will be converted into normal shares, with the main payment to the bank occuring at that point.

The idea is that the taxpayer only has to pay once there is a problem, and the convertible shares don't necessarily constitute a dilution of the common equity holding before then. As I said before, and everyone else seems to be saying, still no clear line on who is expected to suffer here. They act like a few hundred billion dollars worth of dodgy investments aren't out there to be paid for.

Speaking of which: http://www.bloomberg.com/apps/news?pid=20601109&sid=aGqIiR1PCrq8&refer=home
http://www.ft.com/cms/s/0/50bcd2cc-01e5-11de-8199-000077b07658,s01=1.html?nclick_check=1

http://www.businessspectator.com.au/bs.nsf/Article/21st-century-banking-$pd20090223-PHQCM?OpenDocument&src=sph
http://www.businessspectator.com.au/bs.nsf/Article/Banks-play-battleships-$pd20090224-PJS9G?OpenDocument&src=sph
I like these articles. I had been thinking about this sort of area (information asymmetry brought about by dodgy accounting rules as contributing to credit crunches) as a thesis topic, but I moved away from that a little bit.

Meanwhile, the real economy all over the world is getting more and more out of shape:

http://www.businessspectator.com.au/bs.nsf/Article/The-return-of-capital-controls-$pd20090223-PJ7FE?OpenDocument&src=sph
Eastern Europe is falling to pieces, there is talk about capital controls now to prevent currency collapses set to rival those of the Asian Financial Crisis. It will certainly be interesting to see how the EU reacts to that sort of thing - strictly speaking a lot of these countries are meant to be future members of the euro zone and are very important trade partners. Monetary policy in these countries is heavily influenced by Frankfurt (the seat of the ECB) and Brussels. If they don't do anything, or end up being blamed for anything, you would expect any prospects of European integration to slow down dramatically.

And as for the US, people are still struggling to grasp the seriousness, for the most part. "Black Swan" author Taleb is of course on the other side of that particular divide.

At any rate:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAZzcqBRclVE&refer=home
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDhMMI9EMl5Q&refer=home
http://www.businessspectator.com.au/bs.nsf/Article/Macquarie-$pd20090223-PJ6AG?OpenDocument&src=sph