When you try to paper over a problem in lieu of addressing it–which pretty much defines the government’s alphabet soup of funds transfer programs to keep blood in the veins of zombie financial institutions–it means, among other things, a lot of time and energy must be spent dancing frantically around the point. The looming question of stress test results for the U.S.’s 19 biggest banks illustrates the bind.
After floating the possibility that it might only release aggregate results, with no word about specific institutions, the White House is being forced to reconsider. As the Wall Street Journal reports this morning:
Since announcing the stress tests earlier this year, the government hasn’t made clear what, if anything, would be disclosed about the assessments. The Treasury originally suggested it would defer to individual banks to disclose results. But some regulators worried about banks selectively leaking information, causing a possible bias against rivals….
[S]ome within the administration believe a certain amount of information needs to be released in order to provide assurance about the validity and rigor of the assessments. In addition, these people also are concerned that the tests won’t be able to fulfill their basic function of shoring up confidence unless investors are able to see data for themselves.
Things get complicated when you’re committed to non-transparency. More on the politics of stress test disclosures from NYT.
But as Goldman Sachs prepares to buy its way out of the TARP program–and with other institutions making noise about following suit–the day’s real must-read is Louise Story’s NYT account of a backdoor aid program with no strings attached, courtesy of the FDIC. So far the big players have issued about $300 billion in new debt with AAA ratings thanks to FDIC guarantees; Bank of America leads the pack at $44 billion, followed by JP Morgan Chase, General Electric (!), Citigroup, Morgan Stanley, and Goldman, all of whom have issued $20-$40 billion apiece in new debt thanks to the little-noted program. Story writes:
The value of the assistance, economists say, is incalculable, because it helped keep participating banks alive despite the panic sown in financial markets after Lehman Brothers collapsed. “I don’t know how you measure that subsidy,” said Mark Zandi, the chief economist at Moody’s Economy.com. “That’s why they say it’s invaluable. It’s an infinite subsidy. It’s their franchise value.”
Also a must-read: Financial Times columnist Martin Wolf on the Simon Johnson essay in the Atlantic that I wrote about yesterday: “Is America the new Russia?” The very patrician Wolf says no; he cannot countenance the idea that Washington is as awash in bought-and-paid-for agents of financial elites as the Moscow of yore. But his own argument suggests that for practical purposes, the answer is yes: “[T]he belief that Wall Street needs to be preserved largely as it is now is mainly a consequence of fear. The view that large and complex financial institutions are too big to fail may be wrong. But it is easy to understand why intelligent policymakers shrink from testing it. At the same time, politicians fear a public backlash against large infusions of public capital. So, like Japan, the US is caught between the elite’s fear of bankruptcy and the public’s loathing of bail-outs. This is a more complex phenomenon than the ‘quiet coup’ Prof Johnson describes.” Really?
Robert Reich: Why we’re not at the beginning of the end, and probaby not even at the end of the beginning; NYT: Wall Street’s brain drain; FT: Hackers escalate theft of financial data; Text of Barack Obama’s Tuesday speech on the economy at Georgetown University; Voice of San Diego: Real estate scams alive and well in the post-boom world (plus part two);