Stress Tests: A P.R. Stunt Devised by the Banking Industry

There's a major leak at a nuclear power plant, ultimately traced to a defective design in the concrete containment shell.

The faulty design was caused by a faulty model which showed that the containment shell would withstand a 7.0 earthquake when - in fact - it would not even withstand a 3.0 earthquake.

All of the big nuclear plants use the same design. And so they are all at risk.

The nuclear industry does not want to admit how dangerous the potential problem might be, or to spend the money to fix it. So the CEOs of the big nuclear power companies call up the head of the Nuclear Regulatory Commission, himself the former CEO of one of the nuclear giants.

The NRC chief himself had been under pressure from the public to crack down on the faulty shell design, and so he was looking for a way to take the heat off of his agency.

Over drinks at the bar of a luxury hotel, the good old boys discuss their problem. They decide that what's needed is an examination to reassure the public that everything is okay with the power plants.

So the power company CEOs come up with a series of test procedures - using their old models - to show that the plants could withstand a level 7.0 or greater earthquake. (The NRC discovers that an 8.0 earthquake is forecast next to one of the power plants, but it doesn't insist anyone changes its models, it just says it will get tougher with the companies).

After the examinations are conducted, the NRC announces that one-third of the power plants need to reinforce their containment shells. The power company chieftans are furious, and engage in negotiations with the NRC to try to give more favorable results, so that they don't have to spend the money to reinforce their buildings.

Virtually all of the independent (non-industry) nuclear engineers say that the companies' models are faulty, that the NRC is not releasing sufficient details on how the models were run, that the models should have been run using the more realistic scenario (an 8.0 earthquake), that this isn't the kind of thing you "negotiate" over, that the containment shells at all of the big nuclear plants are defective and are likely to lead to meltdowns, and that the potential of additional accidents from weak concrete shells could cause severe problems to the country.

Stressed Out

This is exactly the situation occurring with the bank "stress tests" administered by the Treasury Department.

The tests are being administered by consummate banking industry insider Tim Geithner.

As the New York Times pointed out in February:

Treasury and Fed officials said they had consulted with industry executives in devising the tests.

Bank executives reached over the weekend said that the tests might not produce information that is very different from what regulators already know about the banks. The Federal Reserve already has hundreds of examiners on site at the largest banks, monitoring their businesses.

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