COUSIN TIMMY'S STRESS(-FREE) TEST
Anyhow, Yves at Naked Capitalism has a nice take-down of not only Treasury, but the fawning and shamelessly pro-bank reaction of our good friends in the mainstream press. Or as she put it, "[t]he unduly charitable coverage of the stress tests." Some highlights, starting with a few facts the NTY did not cover:
1. The fact quite a few of the banks negotiated their fundraising requirements down, calling the integrity of the process into questionThe WSJ joined in on the self-serving fun as well:
2. No mention that the purpose of this exercise from the outset was to prove the banking system to be solvent. What kind of a test is that?
3. No mention that asset sales (the reason Citi was able to negotiate its fundraising down from $10 billion, and presumably others as well) are almost certain to be a non-starter.
The Wall Street Journal , in "How the Stress Tests Stopped the Market Bleeding," depicts Geithner, the Fed, and Obama as saviors of the market:As to the press' breathless prattling that Wall St. has been saved from the dangers and horror of "nationalization" or receivership, Yves noted:Mr. Geithner successfully beat back criticism that the examinations were a political ploy, leaving much of the number-crunching to the Federal Reserve. The stock market regained its footing as consumer confidence crept back. And several major banks reported unexpectedly strong earnings for the first quarter, boosting confidence about their long-term health. the only critics Geithner "beat back" were some of the bankers themselves. The stock market regained its footing because it was oversold and Citi and Bank of America said they'd had a good January and February. The consumer confidence numbers are stronger in no small measure because stock market movements are included in the computation! In fact, in the Conference Board's release, the stock market rally was the single biggest contributor to the improvement in sentiment.
The illogic is breathtaking. It has now become conventional wisdom that a bankruptcy is the only way to straighten out GM, yet there is no realistic plan for getting the banking industry into a configuration that reduces systemic risk or end incentives for banks to gamble with their now explicit government backstop or a realistic plan to clean up the bad assets (we do not believe the PPIP will succeed). Receivership for the weakest banks is a far better approach for taxpayers and the economy, yet the Journal is touting the line that what is best for incumbent bank management is surely best for America.Finally, she observed that many of the real villains escaped notice, as usual:
And the other big shortcoming is that the securities and derivatives exposures at the big capital markets players (Citi, BofA, JP Morgan) were given the short shrift.Nothing new here, huh?
Check out the whole piece. It'll put some of this in better perspective.
Have a nice weekend.