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The World Bank And The Stress Test For U.S. Banks

Simon Johnson @ The baseline Scenario, 10 March 2009

Forecasters at international organizations often find themselves in a delicate position.  On the one hand, they have unparalleled access to hard data and intelligence about what is happening in every corner of the world economy.  On the other hand, their main shareholders – the US and larger European countries – do not want to hear predictions that are inconsistent with their own preferred baseline.

And, in the case of the US today, nothing could be more sensitive: it’s a relatively optimistic baseline, with a quick bounceback next year, that underpins the mild “stress scenario” being used for banks.  So if the World Bank or the IMF said that the world economy is going down and not coming back any time soon, that would raise major issues.

The World Bank clearly wants to speak truth to authority on this occasion, but can’t quite get the job done.  Link to article

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