FORTUNE -- Goldman Sachs and JPMorgan Chase pose no threat to the economy. How do we know? Beats me.
Late Monday, the Federal Reserve said that the two giant banks had officially passed their annual stress tests. The actual tests, which are supposed to assess whether the nation's biggest banks could survive another financial crisis, were conducted late last year. The results were initially released in March. Nearly all of the 18 big banks that were tested passed.
But for the first time this year, the Fed not only tested whether the banks had enough capital, but if their methods to determine how much capital they needed was good enough. Seems "high enough" was apparently not an acceptable answer. Goldman (GS) and JPMorgan (JPM) passed the first part of the test, but bombed the second part.
The weird thing, though, is that the Fed has never said what the issues were. I tried to find out at the time the test results initially came out. The best answer I could get for Goldman was that it was secretive on how it measured what assets it considered risky and what assets it deemed safe. The risky assets figure is a key input that the Fed uses to figure out how much capital you need to have.
For JPMorgan, the answer seemed to be London Whale, duh. And that actually seems like a pretty good answer because not knowing you are at risk of losing $6 billion might lead you to misjudge how much capital you need.
Still, who knows? All the Fed said on Monday was that the two banks had been asked to resubmit their plans due to "weakness identified in their capital planning process." They did. And they now have passed.
And yet, it's not clear our banks are any less risky. Take Goldman. Last quarter, the firm reported a $1.3 billion loss related to currencies, although that loss was offset elsewhere. Overall, the firm had a profit. Still, such a large loss in one line of business during this summer's relatively small market hiccup could suggest why the government had an issue with the way Goldman was determining how risky its assets were. Again, if the Fed did, which I don't know.
Initially, the point of the stress tests were to reassure the public that our banks were healthy. The Fed would release a whole bunch of numbers proving banks were safe, and that would build confidence. And it worked at the height of the financial crisis.
It worked so well that Congress decided it would be good to do it every year. But what was once a big public display of numbers has morphed into something else. Now banks fail for reasons we don't know, and then pass for resolving those unknown issues in ways we don't know. Feel safer now?
Clarification: An earlier version of this story said that Goldman had a $1 billion trading loss in the third quarter. In fact, Goldman lost money in one area of trading. Overall, it made money. Also, an earlier version of this story said that Goldman failed its stress test. Actually, the Fed gave Goldman a temporary pass, and required the firm to resubmit its results before the end of the year.
In the Fed's mirror, a stock market bubble is appearing farther away than it may actually be.
Fortune -- At Thursday's confirmation hearing for Janet Yellen, the nominee to be the next Federal Reserve chairman was asked whether she thought there was a bubble in the stock market.
Yellen gave a pretty clear answer: No.
"Stock prices have risen pretty robustly," Yellen said. "But I think that if you look at traditional valuation MOREStephen Gandel, senior editor - Nov 15, 2013 12:04 PM ET
The market isn't reacting to certain economic news as we might expect, but that doesn't mean it isn't rational.
By Mohamed A. El-Erian
FORTUNE -- So, good news was interpreted as bad news by the markets on Thursday while, on the very next day, good news was indeed good news? Are markets really that fickle? Are convictions really that shallow?
It is tempting to respond yes based on the view that, over MORENov 11, 2013 9:02 AM ET
Anyone who thinks October's better-than-expected jobs report will make the central bank taper sooner is ignoring the mess in Washington.
FORTUNE -- The monthly jobs report released Friday was better than expected, but anyone who thinks this means the Federal Reserve will start slowing down its economic stimulus program is probably overlooking Washington's dysfunction.
Recall in October, Uncle Sam was forced to partially shut down its offices and services after Congress stalled MORENin-Hai Tseng, Writer - Nov 8, 2013 11:22 AM ET
Economists at the Fed have come up with a handful of indicators they say are encouraging signs that the jobless rate will continue to fall for the right reasons.
FORTUNE -- As the U.S. unemployment rate falls, skepticism grows about any real improvements in the job market.
The share of jobless workers may have fallen to its lowest level since November 2008, but this comes as millions of unemployed scratch their heads wondering how MORENin-Hai Tseng, Writer - Nov 4, 2013 1:54 PM ET
The central bank noted that the housing recovery is slowing, but it's no cause for alarm.
FORTUNE -- The Federal Reserve on Wednesday pressed ahead with its stimulus program of asset purchases and low interest rates. Yup, as widely expected (and reported), the end of its two-day meeting was pretty much a snoozer: For the most part, the central bank made few changes to its description of the state of the economy, MORENin-Hai Tseng, Writer - Oct 31, 2013 10:56 AM ET
The Fed seems most concerned with inflation, but some economists see a bigger risk in prices declining.
FORTUNE -- As Federal Reserve policymakers wrap up their two-day meeting Wednesday, some have called on the central bank to do more to avoid threats of deflation.
Most don't like having to paying higher prices, and the Fed has long tried to stabilize the U.S. economy by keeping the general costs of everything from shelter MORENin-Hai Tseng, Writer - Oct 30, 2013 5:00 AM ET
President Obama's pick for Fed chair is also a stamp collector!
FORTUNE -- President Obama on Wednesday tapped Janet Yellen to succeed Ben Bernanke as the next chairman of the Federal Reserve. By now, many Americans know Yellen could go down in history as the first woman to lead the Fed, as well as the first Democrat to head the central bank in almost 30 years.
Here are a few facets you MORENin-Hai Tseng, Writer - Oct 10, 2013 5:00 AM ET
Even in a default, many investors would see Treasuries as safer than stocks.
FORTUNE -- As Congress seems nowhere closer to resolving the nation's budget problems on day four of the government shutdown, federal officials have raised fresh warnings the U.S. could default on its debt.
Credit markets could freeze, the dollar's value could spiral, and U.S. interest rates could skyrocket, the U.S. Treasury Department warned Thursday. If Congress fails to lift MORENin-Hai Tseng, Writer - Oct 4, 2013 5:00 AM ET
Mike Novogratz, principal of the asset management firm Fortress Investment Group, thinks CEOs need to have a "moral revolution."
By Lauren Silva Laughlin
FORTUNE -- Mike Novogratz and the other principals of hedge fund Fortress Investment Group (FIG) became instant billionaires when the company went public in 2007. Like many other uber-rich on Wall Street, their wealth, some of it created by loose monetary policy, has become the target of criticism from politicians MORESep 27, 2013 9:13 AM ET
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