During the current economic downturn, it has been banks who have shouldered the burden [and much of the pain] of bringing capital into the U.S. financial system. This was necessary to cover the capital drain on banks’ balance sheets created by consumers who failed to make good on their promises to pay their mortgage payments. There would have been no banking “crisis”, and a much softer economic downturn, had all consumers paid their mortgage payments as promised. In cases where the added capital came from TARP funds, the recipient banks are required to repay those funds to the U.S. Treasury, plus interest at a rate that we calculate to be as high as 9.3%. [This sounds like a pretty good investment for the U.S. Treasury.] For other banks, additional capital has been raised through alternative sources, which must ultimately be repaid to those sources. So, banks have stepped-up to solve the crisis caused in large part by the consumer. [Oh, ... and don't let anyone fool you with the idea that it was the banks who convinced consumers to purchase that larger home or buy a new car or spend money on that special vacation ... it was the realtors, car companies, advertising agencies, and the neighbor down the street who played that role ...] Much of the pain and burden of the current economic downturn has been and will be shouldered by banks … and banks will be paying the price for that capital for many years to come. Furthermore, the loss of capital in the banking system will impact the entire U.S. economy for many years.

I tend to the Roubini/ Ferguson approach of rip the band-aid off and lets see what’s going on. My own view is that the current approach is too slanted towards the do less approach – I still sense a snowball or avalanche of new potential problems in credit that may exceed the stress test calculations.