Citi, banks, stress tests – I’m confused |

Citi, banks, stress tests – I’m confused

So rumors are all over the place today and I’m confused. Citibank gained on news that the government is selling its stake. For a story about it (there were umpteen all around), click here. I have no idea about it, but I am confused, since it came while I was reading the following article from Mike Konczal about some funny numbers with the bank stress test. In essence, Konczal points out that the stress tests didn’t account for second-lien mortgages defaulting at a higher-than-anticipated rate. By his estimates, had second lien mortgages been taken into account, with a 40-60% default rate, as opposed to 13%, there would be a roughly $150 billion hole in the balance sheet of the 4 largest banks, and the government would need to step in. For the full analysis, click here.

Then, the Economist, comes out with a response (before I could even finish the article – yowzers). For their response, click here. And they say that we’re actually OK. Not good, but OK. Whew!

In the meantime, C pops 7% on the rumors mentioned, and I’m left confused.

Last 5 posts by Yaron Sadan

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