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“A group of brilliant fund managers have outsmarted a group of weak government officials at the top of the Treasury,” he said. “If the Treasury does not catch on to what has happened to them, we all will pay heavily.”

Richard Bove has some legitimate worries about Geithner’s stress testing. An excerpt

“The Treasury never considered what the results of this process might be,” he said. “It may not have considered the fact that it had just set up a system to drive a number of large banks out of business and possibly put down the whole system.”

Worse still, in Mr. Bove’s view, is the possibility that the Treasury could be focusing on the wrong thing as it puts the banks on the examination table.

In recent months, many analysts and investors have zeroed in on banks’ tangible common equity to its risk-weighted assets — which had previously been a somewhat obscure financial ratio — as one of the most important gauges of financial health.

In February, the Treasury came to the rescue of Citigroup for the third time by converting its preferred shares to common shares to increase this ratio.

Mr. Bove said he believed that a small group of investors betting against the banks have persuaded the markets, and perhaps the government, to put too much emphasis on a bank’s tangible common equity ratio. He says that no studies exist to validate the connection between a bank’s health and its level of tangible common equity. In fact, for decades it has been the opposite, he said, as banks were encouraged not to have too much capital lying around.