Stress Test Finale
| Wed May. 6, 2009 10:04 PM PDT
The Wall Street Journal reports on the results of the stress tests:
The Federal Reserve directed at least seven of the nation's biggest banks to bolster their capital levels by $65 billion while effectively blessing the stability of six others, marking for the first time a bold line between some of the nation's stronger and weaker banks.
All I can say at this point is that I'm baffled. If Geithner is right, then everything is fine and the banking system was never really in very big trouble. $65 billion is nothing. But if the IMF is right, American banks are nearly $300 billion short. If Nouriel Roubini is right, the shortfall might be even greater.
So who is right? I have no idea. "All Americans should be confident that these institutions are going to be viable institutions going forward," Geithner said tonight, and I sure hope that's the straight dope. But these discrepancies are simply too large to wave away. Somebody is way, way off base, and I'd sure like to know who it is.
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Comments
Well, one way to judge might
Submitted by Anonymous (not verified) on Wed May. 6, 2009 10:19 PM PDT.
Well, one way to judge might be to look at the proponents of the 3 different views, and examine their records -- sort of a bayesian approach. On the one hand, Nouriel Roubini has a history of being right and in front of things. On the other hand, Geithner and his friends have a history of giving enormous handouts and sloppy *** to the finance industry. Hmm.
Some call him "Tim"
Submitted by DevilDog on Wed May. 6, 2009 10:56 PM PDT.
Kevin: "Somebody is way, way off base, and I'd sure like to know who it is."
Which one of the three candidates is not a dispassionate analyst, but comes from the Wall Street, investment banking culture?
Geithner vs. Roubini
Submitted by Anonymous (not verified) on Wed May. 6, 2009 11:17 PM PDT.
Hey, how hard is this? We have track records for the past records of both these guys for prognostication and analysis of American finance. Roubini: pretty good. Geithner: not so much.
It's simple!
Submitted by Anonymous (not verified) on Thu May. 7, 2009 5:45 AM PDT.
The banks need $35 billion now. Later, they will need $300+ billion. C'mon everybody, this isn't rocket science.
You don't even have to look
Submitted by SSJPabs (not verified) on Thu May. 7, 2009 5:46 AM PDT.
You don't even have to look at Geithner's record. As TPM reported: The takeaway is that there was an intensely negotiated, political process between banks and regulators over what the results should be.
That tells you one thing, on this matter, Geithner and (because of his unending support) Obama are LYING.
Scummy of them, eh?
They're bullshitting us
Submitted by g. powell on Thu May. 7, 2009 5:48 AM PDT.
Maybe the Obama people will get lucky and we can muddle through this financial crisis on the back of a stronger-than-expected recovery.
But I doubt it. I think they'll eventualy be forced to ask for more money from Congress. Then they'll have some explaining to do.
What bothers me is that I expected better from these people. This all stress test process reminds me of the type of garbage the Bush Administration used to pull all the time. They're treating us like children.
The Geithner skepticism here is epic.
Treasury had a huge staff pore over the actual books of the institutions in question. The other parties did back-of-the-envelope calculations, based largely on guesswork.
Do people really believe Geithner has an incentive to help the banks zombie forward? If he just wanted to funnel more money into them, he wouldn't give figures that could easily be met by private sources of capital and preferred-common conversions.
The only reason I can think of that he might understate the problem is if he is totally convinced that there's no more TARP money available from Congress, and he just wants bolster confidence so they might earn their way out of their mess. The problem with that story is that there's probably a little more than $120 billion of TARP money left. The total he says is need is about half that.
I'm sure these numbers have been individually massaged, but I just don't see why the Obama administration would blow its credibility on something as important as this. If anyone has any ideas, please share them.
You got it Wagster
Submitted by g. powell on Thu May. 7, 2009 6:33 AM PDT.
The only reason I can think of that he might understate the problem is if he is totally convinced that there's no more TARP money available from Congress, and he just wants bolster confidence so they might earn their way out of their mess.
Yes, that's precisely the argument. The Obama people are gambling that this will pan out. They don't want to spend the political capital that would be necessary to seriously reform the financial sector, which would involve putting the largest institutions into temporary receivership.
I understand that, but I still think they're wrong. And I don't trust Geithner or Summers. Both men failed to predict the onset of this crisis. Summers is even partly responsible for it because of his deregulatory moves during Clinton.
I also don't trust them because they helped engineer a massive public subsidy to these institutions without requiring them to halt dividend payments to shareholders or overhauling their compensation structures. That's just plain wrong.
Forcing honesty on the stress tests
Submitted by karog on Thu May. 7, 2009 6:42 AM PDT.
I would like to have seen Congress attempt to force some honesty on the stress test process by announcing in advance to the Fed, the Treasury, and the banks that the results of the stress tests would impose a ceiling on what the Congress would do in the future to help the banks.
If the tests say the banks do not need that much (as they are now appearing to say) then that is the most Congress will help provide. If things go pear shaped and the banks need a lot more in the future (as Roubini claims), then instant receivership for them.
This would put pressure on the process to be more honest. You don't want to face receivership? Then you better not paint too rosy a picture.
It's Wall St. insider stuff.
Submitted by Luther on Thu May. 7, 2009 7:17 AM PDT.
It's Wall St. insider stuff.
Some one had blundered:
Taxpayers not to make reply,
Taxpayers not to reason why,
Feds and banks in bed do lie.
Who's examined their books?
Submitted by al-Fubar (not verified) on Thu May. 7, 2009 7:23 AM PDT.
Wagster has, shall we say, a point. Healthy skepticism is one thing, but a lot of these comments sound like mirror-image global warming 'skeptics.'
Give me a break
Submitted by g. powell on Thu May. 7, 2009 7:35 AM PDT.
Are you serious al-Fubar?
The problem here is that all independent sources point to the opposite conclusion that the Treasury is reporting.
Maybe Treasury got it right because they had access to better numbers, but they were not objective players.
Plus, the evidence suggests that the stress tests were not performed in good faith. Treasury wanted a certain result and negotiated with the public through leaks to see what was mininmally acceptable.
Sorry, but this is the way Bush conducted policy. Don't accuse some of us of being irrational just because we are unhappy with a flawed process.
All I ask for is a narrative... if you want to presume bad faith, you need a story saying where the treachery is.
Geithner has laid out a scenario where the TARP money is mainly being kept in the government's pocket. Wouldn't you all be jumping down his throat even more if he wanted to spend more of it on the banks? Would he really risk a zombie bank march into the next decade, since he still has the means left (more than $100BN in the TARP fund) to at least ameliorate it? I just want a story. Why would he be understating the problem?
Also, there's a wide-spread idea that somehow nationalization would be free. Like it's a magic door that Treasury doesn't want to pass through because of irrational nationalization-squeamishness. How could assuming the banks' liabilities be cheaper (or more politically doable) than trying to get private investors to do it?
Wagster- I thought you provided a pretty good narrative above. They hope to muddle through the crisis without resorting to more radical action. Some of us think that, unfortunately, radical action is necessary and the sooner we do it, the better.
Also, I think that Geithner and Summers want to preserve the financial system as it was practiced over the last decade as much as possible. Summers in particular was a strong advocate of deregulaton. The man has a huge ego, that's why he was a disaster as president of Harvard, and he wants to preserve his legacy. I think they are sowing the seeds for the next financial disaster. We can't can't afford another like this.
And no, I don't think temporary nationalization is easy. In fact, I think it would be like chemo -- painful but necessary. If the private sector wants to clean this up on their own, great. But they're not.
Sorry, no witches or dragons in this story.
Two things 1) Of course they
Submitted by MNPundit (not verified) on Thu May. 7, 2009 2:07 PM PDT.
Two things
1) Of course they don't want to spend TARP. All their actions with the present TARP money have made everyone hate that aspect of their administration (and rightly so). They need to save that TARP money because there's no way in hell they are ever getting anymore.
2) I'm sympathetic to the idea that receivership may end up costing more than what is being done and somewhat on board with the idea that it's actually illegal based on various countries laws and agreements--but they have thrown any even transparent commitment to transparency or listening over the side (Obama's ridiculous Summers = Reich comments) and as such they have no credibility none.
When it comes to dealing with the financial sector in particular, Obama is scum. A Chicago School Worshipper through and through.
I think a part of the
Submitted by Anonymous (not verified) on Thu May. 7, 2009 11:06 AM PDT.
I think a part of the difference is that Roubini is saying there needs to be a lot of write downs.
Geithner is saying that the banks are generating very large operational profits that can be applied against any write downs that may need to be done.
If bank A has $100 billion of write downs required but generates $30 billion a year in operational profits then, with a 3 year time horizon, only $10 billion needs to be set against the expected write downs.
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Of course they don't want to
Submitted by links of london (not verified) on Thu Jun. 11, 2009 4:10 PM PDT.
Of course they don't want to spend TARP. All their actions with the present TARP money have made everyone hate that aspect of their administration (and rightly so). They need to save that TARP money because there's no way in hell they are ever getting anymore.
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