Watching the Greek news over the weekend, I witnessed feverish broadcasters, almost panicked, emphasizing as strongly as they could that the Greek banks are safe and that all, yes they were saying all, even though one failed, had passed the tests with great success and that no risk existed for the banks. It was so clear that the whole thing was orchestrated. They even were slowing down their speeches, almost spelling the letters, when they would say how A L L the B A N K S H A V E P A S S E D T H E W O R S T C A S E S C E N A R I O T E S T S.
And, of course, these were hardly the worst case scenarios. They weren’t even the most possible scenarios. Apart from their profound eagerness to emphasize the result, which shows that there is something there, there were other reasons to not take what they said at face value. For example, the Greek media trumpeted how much more the capital requirements were for the Greek banks, 15 percent, in comparison to the requirements of let’s say Spanish banks, which was only 6 percent. They failed to mention, though, what counted as capital and what prices they used in order to value the bonds and the other assets the banks hold. Reading in the press, my suspicions that there has to be something fishy here were validated, as I realized that they used the before the crisis asset prices. But those prices have already declined in some cases more than 15 percent.
If we also remind ourselves that European banks have already received billions of tax-payer’s money in order to stay “well” capitalized, these phony tests clearly fail to calm the worries of investors. After all this infusion of capital, they still cannot pass serious tests, or at least the European officials seem afraid to consider them. If nothing else, this behavior, doubled up with the a p p a r e n t eagerness of European politicians to draw a different picture, make us reach a different conclusion than the one they want us to reach.
