On this bright road to recovery, the stress tests on the nation’s 19 largest banks and the Chrysler bankruptcy mark two fundamental examples that clearly bear Obama administration’s stamp.
Unfortunately, the results to this point seem questionable.
The delay of the stress-test results to Thursday have created even more confusion among investors, who question who’s actually administering these tests - the government or the banks themselves.
“The fact that the authorities are allowing banks to negotiate the findings is a very very bad sign,” Yves Smith writes at naked capitalism. And, she adds, “the real risk to the system is not in not-too-difficult to value (and sell) loans, but in the complex dreck and derivative exposure at the big capital markets players, namely Citi and Bank of America.”
There’s been so much confusion surrounding the tests, most people are numb already, she notes. So how will one know how to react on Thursday when the results are released?
“I’d wait till Meredith Whitney weighs in,” Smith says.
But even as the release of the stress tests has become a “leak free-for-all,” former Portfolio.com blogger Ryan Avent says an endgame may be emerging.
“The administration probably wants to use the stress tests to sound the all clear for most of the nation’s big banks, helping them to recapitalize primarily from private sources,” he says. “The big question to me is where this leaves PPIP.”
Former Treasury Secretary Paulson gave up on asset purchases for a reason, he says. “I wonder if Geithner isn’t moving the same way, thinking that a clean bill of health will let markets do the recapitalizing of most banks, allowing Treasury to keep its remaining TARP money for the really sick banks.”
As for Chrysler, FusionIQ CEO Barry Ritholtz wonders whether the automaker’s bankruptcy will mark another turning point in the economic collapse. A hundred days into the Obama Administration, there is some stabilization, he notes.
“This is an environment that should encourage the emergency footing of the economic team to stand down,” he says.
If the administration wants to break from the Bush team’s policy of just throwing money at the banks, now would be the time, Ritholtz notes. “If the post panic Obama admin wants to make a break from those policies, forcing the banks to raise private capital or go into FDIC liquidation is the way to do that.”
(Paul Vigna contributed to this report.)
May 5, 2009
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