That is what the WSJ should have been asking. It reports that stress test evaluate the solvency of banks: "even if the unemployment rate were to rise above 10% and home prices to fall by an additional 25%." This is far from a worse case scenario. With the unemployment rate at 8.5 percent, and the economy reportedly losing 660,000 jobs in March, the unemployment rate is almost certain to cross 10 percent before the end of the year. With house prices dropping by 2.0 percent per month, it is also very plausible that house prices will drop by 25 percent. A stress test is supposed to examine a worse case scenario, not an optimistic one. By picking overly optimistic projections, Treasury increases the likelihood that banks will pass the stress test. This should have been noted in the article.
--Dean Baker
