The financial crisis has gone enough rounds to have evolved from tragedy into farce. The stress tests are a prime example.
It’s hardly news that some banks are mucho unhappy with their grades. Wells Fargo and US Bank were complaining about the tests even before they began, clearly anticipating less than stellar scores based on the metric. Bank of America and Citi are known to be negotiating, arguing that they don’t need the capital raises suggested.
It’s hard to discern at a remove how much of the peevishness is the discovery by banks that they have little to lose in behaving like utter pigs. We saw it today with the failure of the bankruptcy mod bill in the Senate (even after concessions had been offered). Admittedly, Chrysler was a partial exception, since the Treasury made considerable economic concessions, but finally drew the line and put the company into bankruptcy. However. Team Obama wanted to make a show to prevent even worse shenanigans with GM (but the New York Times points out that the pre-pack could take as long as four months, hardly a quick in and out, and some bankruptcy lawyers have pointed out that other deals expected to be fast track have taken a year).
But let’s face it, in a real test, you don’t get to score it yourself and then argue the grade. The banks fundamentally don’t seem to accept that they are regulated entities and expect to be treated as equal partners. Given the likely decay in employment given the weakening fundamentals, all the Treasury is doing is getting the banks to face the music perhaps six months ahead of time, which is something they should be doing on their own.
But the flip side is this is yet another Geithner miscalculation. He wants to look tough on the banks, yet starts waffling when the banks get in a tizzy and presumably invoke images of market mayhem. But the use of the word “test”, meant to reassure that there was indeed a method, led to demands for transparency. As much as I am a fan of disclosure in general, this is an area where less would have been more (although leaks make that a tough approach to maintain).
From Bloomberg:
The Federal Reserve is postponing the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.
The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as today, they said.
Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.
“Everybody understands they’ve got a tiger by the tail here,” said Mark Tenhundfeld, a senior vice president at the American Bankers’ Association in Washington. “If they don’t let him go gently, there will be a lot of mauling going on.”
Given Timmie’s problems with meeting deadlines, I wouldn’t hang my hat on the end of next week timeframe.
From Bloomberg:
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Of course they’re buying time. Even with the generous terms given to the banks to self asses their positions they’re still in the shit. With the tsunami of commercial RE defaults looming along with god knows what else, none of these institutions and the Fed are in any position to cop any large looses or write-downs.
Farce which must be personally endured becomes allegory. We’ll all be there by 2010, if not before.
With the ‘stress tests,’ we see again a policy announced with any credible contingency problem for what to do if the results are sufficiently bad that remedial action is _required_.
To me, there are two reasons for this lack of preparation, not including the third evident explanation of a lack of competence by the Chief Testor. Reason One for a lack of contingency planning, is that passing grades were pre-determined as the only acceptable outcome so the actual results of said tests never required contingency planning. Reason Two is that the only plan the financial industry has ever been willing to accept, still their Plan A for a year and a half and counting, is to hold the economy hostage until the Federal Government or some trustee of folly which they should designate buys all of the financial systems bad ASBs at a price that their current holders feel acceptable.
That is the nut of it: there is no plan because the _real_ plan is still for the government, i.e. the public, to take all the losses from the recent bubble. The public smells this, now, but is still under the illusion that we are a country of laws with elected officials who as a group are committed to their oaths of office to serve the public good. That is not our present country, its governors, nor its class of wealth.
OT? ‘Like a Cancer’
Flawed Credit Ratings Reap Profits as Regulators FailThe federal government created the rating cartel, and the U.S. is as dependent on it as everyone else. So far, the legislative branch hasn’t cleaned up the ratings mess.
“This problem really is like a cancer that has spread throughout the entire investment system,” Partnoy says. “You’ve got a body filled with little tumors, and you’ve got to go through and find them and cut them out.”
As the U.S. has spent, lent or pledged about $12.8 trillion in efforts to revive the slumping economy, and as President Barack Obama and Congress have worked overtime to find a way out of the deepest recession in 70 years, no one has taken steps that would substantially fix a broken ratings system.
If the government doesn’t head in that direction, all of its efforts at financial reform may be put in jeopardy by the one piece of this puzzle that nobody has yet figured out how to solve.
FD: The Author is currently pissed off @ multiple things, but has had cereal…
“Banks NEGOTIATING the results”??
You do not need any competence in finance to understand that this whole affair is a bad joke.
Pray tell since when an examined has any right to “negotiate” the results of the exam he/she took?
Sure, a student can argue to the teacher that a question was ambiguous, but short of that, it’s tough noogies Buster!
Unless you’re a US bank?