From the Federal Reserve:

Agencies to begin forward-looking economic assessments

The federal bank regulatory agencies announced today that they will start conducting forward-looking economic assessments of large U.S. banking organizations as the Capital Assistance Program (CAP) gets underway. These assessments will be done on an interagency basis as a coordinated supervisory exercise to ensure they are carried out in a timely and consistent manner. Supervisors will work with institutions to estimate the range of possible future losses and the resources to absorb such losses over a two-year period.

WTF? Where have regulators been all these years, at the Northern Trust Open? Only now are regulators starting to make “forward-looking economic assessments.” I have this image of regulators walking into, say, Comerica Bank last November and despite expecting (I hope) that in the following week Michigan unemployment is going to go through the roof — it always does — the regulators blissfully consider Comerica’s Tier 1 capital ratios and say, “So unemployment is going to 10.8% next month. Big deal. We’ll just ignore that little inconvenient fact.”

The new “stress tests” are a joke. They are a prime example of just how incompetent the federal regulators have been all these years. WTF indeed.

Look at the scenarios, too. Apparently, they include three inputs: real GDP, the civilian unemployment rate, and house prices. Are there no economists at the Fed? Professor Ben, did you craft this “test” or did you just leave it to Chris Dodd? The scenarios leave out whole lops of economic factors. How about a small one called, uh, liquidity? Oh, I forgot. Liquidity doesn’t really matter to banks.

Someone throw an economics text book at Bernanke’s head.