7 Other Stress Tests We Ought To Run

If they work for banks, let's apply them to Congress, consumers, and million-dollar executives

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Planning for a worst-case scenario is hardly a novel idea. But it became so unpopular for awhile that President Obama has now rechristened it a “stress test” and shaken up Wall Street as if they never heard of such a thing.

By forcing banks to simulate how they’d perform under a couple of gloomy scenarios, the government hopes to identify who’s likely to need help over the next six months, and roughly how much. You can quibble with the details, but the idea is such a no-brainer we should apply it to a lot of others besides banks. Here are my nominations:

The Wall Street Genius Stress Test. You have a four-digit IQ. You could succeed at anything. You decided to repay the world for your genetic good fortune by going to Wall Street, designing double-secret derivatives, and becoming a billionaire. A few things went wrong, but it wasn’t really your fault. And now regulators want to limit your pay and make you fly commercial. It’s not fair.

[See 4 myths about Obama's bailout plan.]

Maybe you’re right. So here’s your stress test. Start over, but instead of becoming a financial engineer, start a company that provides goods or services that ordinary people actually need. Earn back your billions by adding something productive to the economy, and you can have your Gulfstream back. You can do it – you’re a genius, after all.

The Stan O’Neal – Chuck Prince Clawback Stress Test. The men who ran Merrill Lynch and Citigroup during the housing boom really don’t have much to worry about. Sure, they oversaw many of the deals that left crippling losses at their firms a few years later and contributed to the financial collapse. But each made off with more than $150 million in pay, which out to be enough to live on if they can’t get new jobs anytime soon. Still, there’s been some chatter about “clawing back” extravagant pay for executives who enriched themselves while wrecking their firms. So just to be safe, O’Neal and Prince should hire consultants to advise what it would take to live on $5 million instead of $150 million. Then just stash the report in a drawer and forget about it, like the old days.

[See how Wall Street continues to doom itself.]

The Barack Obama Electric Kool-Aid Acid Stress Test. Let’s see here, you just passed an $800 billion stimulus plan, the banking crisis could eat up another $500 billion, you want $600 billion for health care reform, plus billions more for alternative energy and other priorities. You’re going to pay for that by taxing the rich, pulling out of Iraq, and eliminating $1.5 trillion in waste, fraud and abuse that no other president has been able to touch. Okay, maybe. But just in case your budget director is hallucinating, why not run some numbers to see what might happen if the stimulus plan doesn’t work, the banks need three or four times as much help as you’re budgeting for, and waste, fraud and abuse follow historical patterns and get worse instead of better. While you’re at it, you might as well factor in what happens to the budget if you don’t get reelected in 2012.

[See 5 pieces missing from Obama's bailout plan.]

The Congressional Oblivion Stress Test (COST). Hey, nice speeches. Democrats and Republicans both really seem to feel bad for us constituents out here, slogging through the recession. I’m just wondering if any of you have ever had to, you know, cut back or make due with less. So for your stress test, each member of Congress will have to run his or her office on 75 percent of your ordinary budget, like a family or small business that just took a financial hit. The good news is, you can cut costs any way you want - lay off a few employees, reduce healthcare benefits, or take a personal pay cut to spare your staffers. And to help get the federal budget deficit under control, you also have to eliminate 25 percent of the federal spending that takes place in your district. Don’t panic, it’s just a test.

The Chrysler Fantasy-Savior Stress Test. That Fiat deal sounds great, especially the way the Italians put up no money, get access to the U.S. car market, and maybe even benefit from a few billion in U.S. taxpayer dollars. But let’s pretend that doesn’t happen. Under your stress test, the feds decline to finance the Fiat deal. It’s off. Without that, your viability plan collapses and the government cuts off funding. What now? Sell yourselves to the Chinese?

[See 9 bailout surprises from GM and Chrysler.]

The Pampered Consumer Stress Test. You’ve cut back on spa treatments and given up the occasional latte, hoping that will see you through the recession. But it might take a bit more than that. So spend an evening asking how you’d get by if you had to eat in most nights, pay off all your credit cards, and take vacations you could pay for in cash. Don’t worry, it’s your birthright to spend and this will probably never happen. Just be prepared to act thrifty for awhile, until the present unpleasantness blows over.

The Alex Rodriguez-Bernie Madoff Stress Test. This test isn’t for A-Rod and B-Mad themselves, since they’re already undergoing their own kind of stress tests. Instead, it’s for everybody else whose performance seems too good to be true. We’ve all learned that if the value of your house keeps going up by 10 or 20 percent per year, it’s probably going to come plunging back down like an anvil. Apply the same logic to other parts of your life. Will you keep getting a raise if you do a mediocre job? Will the car dealer keep loaning you money to buy a car it doesn’t seem like you should be able to afford? Will somebody bail you out if things go wrong? Just asking.