The Stress Tests

Are due out on Thursday (after being pushed back). The murmur from econopundits doesn't instill much confidence in the process. Krugman:

Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (”Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)

I hope I’m not being too cynical here. But it would be nice if the administration would, just once, do something to dispel that cynicism.

Joe Weisenthal:

At one point, according to the report, as many as 14 banks were to have been given orders to raise money a number that's come down in recent days -- a testament to how this is all a lot of art, rather than science.

The government is obviously trying extremely hard to spin both the results and the leaks, saying that stress test failure does not constitute insolvency and that the tests should give the public confidence in the banking system.


Simon Johnson:

After long negotiations, the bank stress tests were set to show most banks are close to hav[ing] their Goldilocks level of capital (i.e., just right)  Given that we generally agree (and the President has long stressed) this is the biggest financial crisis since the Great Depression, we seemed to be on the the verge of a capital adequacy miracle.

But instead of this being seen as some combination of good luck and smart policy, ”everyone is basically fine” would look like the banks are running the show.  My Treasury friends swear up and down this is not true, but that is now beside the point.  Whatever the reality, it looks increasingly to everyone like the banks really are in charge.  It’s a nasty rule of politics that you are damaged by where perceived blame lands, rather than by what you actually do.

Noam Scheiber:

My guess is that the market doesn't want too bleak a picture, but doesn't want a whitewash either. The early leaks about stress-test results hint that we may end up in the sweet spot...