The government continues to bury its head in the sand and hope everyone else does the same. From the NYT:
Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it.
Kind of defeats the point of the test, doesn’t it? Or, more precisely, kind of shows the real purpose of the test – to be able to trumpet to the heavens that nothing is happening and everything is perfectly healthy.
Is anyone buying this any more? Does Obama still know better, or has he been captured by the political calculus that the barometer of leadership is the S&P 500?
Meanwhile, Geithner, who sounds increasingly like the Iraqi Information Minister and evidently has never heard about the boy who cried wolf, was in New York recently trying to deliver the oral equivalent of a sternly worded letter:
Treasury Secretary Timothy F. Geithner warned he would take a tough stance. Many banks, he suggested, believe the investments and loans on their books are worth far more than they really are, according to a person who attended the meeting.
Mr. Geithner said that was unacceptable. The banks, he said, will have to sell these assets at prices investors are willing to pay, and so must be prepared to take further write-downs.
Or what? Geithner has said early and often that no bank will be forced to sell any asset, so it is unclear where this “have to” comes from. He has watched for two weeks as all sorts of brilliant bloggers came up with methods of gaming the system using Star Wars characters – there are so many strategies that there is a overview of strategies webpage (mine did not even make it – let’s get linking, readers) – and done absolutely nothing to give confidence that he would like to stop it. Which he could do by the simple expedient of striking the word “non” from the “non-recourse loans” provision of the PPIP.
Moreover, Treasury has made it exceptionally clear that it will break any rule necessary (mark to market comes to mind) to keep the banks solvent. So why would anyone do anything because Tim said so? He has made himself completely powerless, and will remain that way until he has the guts to move from sharp comments to bankruptcy court. When a bondholder finds himself getting below par from a major bank, we will see a prudent Wall Street. And not until then, regardless of how certain we are that our adversaries are throwing themselves to their death.
