Late this afternoon, the Treasury Department is scheduled to announce the results of so-called “stress tests” applied to America’s 20 largest banks. The idea is to determine how well they are prepared to handle further downturns in the economy.

The topic is hideously complex, made all the more so by the Obama administration’s coy handling of the issue and bankers’ desperate attempts to forestall accountability. The best way to understand it is to consider the following:

• On April 27, Sen. Dick Durbin, D-Ill., blurted this truth on a Chicago radio show: “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
• Last Friday, Charles Munger, the 85-year-old vice chairman of Warren Buffett’s Berkshire Hathaway Co., told Bloomberg News, “We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed. If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been — and as stupid as they’ve been.”
• And on Tuesday, comedian Josh Gad explained the purpose of the stress tests on “The Daily Show”: “It’s not about fixing [the banking system]. It’s about making it look like we fixed it. Then the people will put their money back in and we’ve fixed it.”

There is way too much truth in all of this.

In the two decades from 1986 to 2006, the financial industry’s share of all U.S. corporate profits more than doubled, from 19 percent to 41 percent. Along with that came a surge in pay for bankers, who by 2007 were making 181 percent of the average compensation in U.S. private industry.

To protect this, the financial industry invested wisely — not so much in subprime mortgages and other derivatives — in politicians. The industry spent $5.1 billion over the last decade, $1.7 billion in contributions to candidates for federal office and $3.4 billion in lobbying. Mr. Durbin is right: They own the place.

Legitimate stress tests might threaten all that. Having brought the economy to its knees, the industry now is using its influence to make things seem far rosier than they really are. One way is by manipulating earnings reports — miraculously, most big banks showed profits in the last quarter. Another way is by spinning the stress tests.

On Wednesday, news leaked that the stress tests will show that Citigroup, the most troubled of the big banks, needs about $55 billion more in capital. It already has $45 billion in TARP bailout money and can survive — albeit with federal participation — by selling $10 billion in assets.

But the test results are expected to show that other big banks are doing so well that they can cover capital shortfalls on their own and return federal TARP money. This will make Congress happy — because constituents aren’t happy about the bank bailouts — and also make the bankers happy, because they’ll get out from under federal compensation limits and regulators won’t be able to tell them what to do.

For example, the tests reportedly show Bank of America needs $33.9 billion more in capital to withstand any worsening of the economy. Relative to the size of the bank, that’s minor. Bank of America already has received $45 billion in federal bailout money. It is expected to argue that it can cover its capital needs by selling assets or stock, returning the government’s money and thus avoiding more federal intervention.

But is it real? How are these assets being valued? When do the banks get the toxic assets off their balance sheets and at what price? When do they start rebuilding their loan portfolios, putting money into bricks and mortar and homes for Americans, not exotic investments designed to pay off their private homes and jets?

The financial industry need an overhaul, not a stress test. If the events of the last year have proved anything, it’s that big banks are too big to be trusted. Taxpayers should convert TARP loans into common stock, demand seats in the boardrooms and put American banks to work to for America, not American bankers.