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Quote of the Day - 5.4.09
From Paul Krugman, ruminating over the recent leaks about the results of the Treasury's stress tests:
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?")
The source of the stress test leaks is mysterious, but it's the numbers themselves that baffle me more. Most of the leaks, for example, suggest that Citigroup will be told it needs additional capital of $10 billion, a figure so low it would barely be worth bothering with. Conversely, most of the numbers I've seen thrown around from independent analysts come to ten times that amount or more. If it turns out that Citi really is short by only $10 billion, it means we can all breathe a sigh of relief and declare an end to the banking crisis. I woldn't count on that, though.
A total sham
Citigroup decides what's good for Citigroup at this time, and that's what the stress test results will be.
As expected, these "stress tests" will probably be a total sham. It is an inopportune time to ask taxpayers for more money right now, so the banks and govt will punt now and hope for the best. I don't see any evidence that Obama has a policy of stealth nationalization. For some odd reason, he would never do to Citigroup what he is doing to Chrysler.
Don't make the mistake of saying the financial industry has a "lobby". The financial industry doesn't really need a lobby when they own a government.
What's good for Citigroup is
What's good for Citigroup is good for America.
Typo
What's good for Citigroup is good for 0.1% of America.
Fixed it.
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Kevin: I give you immense
Kevin: I give you immense credit for even attempting to follow this story any more. I was giving it my best for a number of months, but now my hair hurts at the very thought of diving in to analyze the insanity. I know when I'm licked.
which card is it?
All that is missing here is a sidewalk, a cheap folding table and 3 playing cards.
What's the hold up?
They are definitely worried about public response. Good, they should be.
Or perhaps your Gov is worried about uninformed reaction
It is enlightening that 2/3 of the commentary here has wanted to conclude that (i) the Banks are Evil and Must be Nationalised and (ii) Anything not Confirming Our Prejudices is Corrupt and Not to Be Trusted.
Frankly, Krugman is not a financial sector specialist. He is a trade economist - indeed a leading one. That does not give him specific expertise in banking structures, nor analysis of bank capital. That Krugman has been on a little Jihad for his own pre-conceived solution (which is not particularly rooted in a deep understanding of bank regulatory issues) is further renders his commentary - well about as fair and balanced as your Fox News. He may or may not be wrong, but neither is his commentary particularly convincing insofar as he is so very partisan for a pet theory not particularly grounded in his real areas of deep expertise.
However, as the above comments indicate, the Treasury's real challenge is the people who already have conclusions and will reduce any data contrary to their conclusion to some Banker Conspiracy.
And insofar as one of the most serious problems at present is less real solvency and more the psychology, that is a real and non-obvious problem for the US Treasury and Central Bank to overcome. Partly of course due to the rather opaque nature of the mass of non-traded instruments that are now "toxic" (or perceived to be, which is essentially self-fulfilling).
Why should we believe them?
the Treasury's real challenge is the people who already have conclusions and will reduce any data contrary to their conclusion to some Banker Conspiracy.
I agree with that. So what has Treasury, or the banks, done in the past few months to boost confidence in their approach?
A year ago, I would have laughed if Simon Johnson, the former IMF economist, told me that the U.S. was ruled by a cabal of financial oligarchs. Now, it appears to be the only explanation for recent events.
We've given a huge amount of public money to these people, who also earn huge compensation packages, for very little in return. It's up to the bankers and the Treasury to prove they're being straight with us. They haven't so far.
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The Banking Conspiracy is
The Banking Conspiracy is not a proven fact? Who knew? I thought the repeal of usury laws makes it clear who's running things.
The same folks who don't like to hear about class warfare don't like hearing about a Bank Conspiracy.
Usury v. Freedom to be Greedy!
There's a running argument about how much government involvement and coercion should ever be allowed. It varies from issue to issue, but our fundamental belief is people should be free and only limited in ways that might harm someone else.
Consider usury...should someone be free to charge 8%, 12%, 30%, 153% or only 1.5%? I say they should be free to charge whatever they like, so long as they aren't a special kind of firm (like a big bank) which could stifle the entire economy with the wrong policy.
Even in this crisis the gov't isn't forcing banks to loan money. There's an assumption that the gov't doesn't know enough about it to do it wisely. But, there should clearly be limits on fraud and gimmicks meant to squeeze people who don't have a clue what's happening to them.
Perhaps the usury law shouldn't exist, but letting firms offering credit to change rates on existing balances or changing due dates or refusing to pick up the phone to listen to customers has to be too outrageous.
Finding that line between regulation and control isn't always easy.
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