" The banking regulators have published two major white papers on the stress tests — "Design and Implementation" plus "Overview of Results." However, in these papers, they have failed to even mention the greatest risk of all: systemic risk.
This is the risk that ...
- A few key players in highly leveraged instruments like derivatives could default on their trades.
- These defaults could set off a series of failures, with the most severe impacts felt by banks that hold the largest share of the derivatives in the country.
This is the giant risk that the Government Accountability Office (GAO) wrote about in its landmark 1994 study, "Financial Derivatives: Actions Needed to Protect the Financial System," warning of "a chain reaction of market withdrawals, possible firm failures, and a systemic crisis."
This is the giant risk that triggered the collapse of Bear Sterns, the failure of Lehman Brothers, and the $180 billion bailout of America's largest insurer, AIG.
It's the giant risk that AIG executives themselves wrote about in their recent memorandum, "AIG: Is The Risk Systemic?," warning of a "cascading impact on a number of life insurers already weakened by credit losses" ... and "a chain reaction of enormous proportion."
It's the giant risk that the International Monetary Fund is most concerned about when it warns of another $3 trillion in global losses due to the banking crisis.
It's the giant risk that prompted former Treasury Secretary Henry Paulson to literally drop to his knees last September, begging Congress for $700 billion in bailout funds for the banking industry.
Since that day, the U.S. economy has suffered the worst back-to-back GDP declines in over 50 years, burning the nation's fuse even closer to a blow-up.
And yet, suddenly, in a massive undertaking that was supposed to accurately evaluate the banks' exposure to these dangers, it's also the giant risk that has been scrupulously scrubbed from 59 pages of official white papers, a half dozen press releases, plus multiple public pronouncements ~ all about the stress tests, all without a single mention of systemic risk.... This omission is both deliberate and unforgivable." http://www.moneyandmarkets.com/five-economic-storms-raging-now-2-33662
