It would seem that the so called stress tests have been loosing
more that a little of their credibility and on more that one front.
Now Time magazine has an expose about them. Even referring
to the esteemed Mr. Geithner as a con artist of the first caliber. 

 Not that three months of supervisory scrutiny of the
country's top 19 banks hasn't produced some grim news. If
the economy dropped to Depression-era levels of
unemployment and credit shrinkage, according to the
Treasury and the Federal Reserve, those firms could lose
nearly $600 billion by the end of 2010, on top of the $350
billion they've already lost since mid-2007. Bank of
America needs nearly $33.9 billion in new capital, Wells
Fargo needs $13.7 billion and Citigroup needs $5.5 billion.
Altogether, 10 of the top 19 need $74.6 billion in
additional capital. (See who's who in Obama's office.)

But in a remarkable bit of salesmanship, Geithner has
managed to package those findings as positive. Most of the
banks can meet or beat the newly imposed government capital
requirements on their own, either by selling off parts of
their business, converting loans into stock or
participating in the fledgling government-led effort to get
toxic assets off their balance sheets. And those that are
short on cash won't need more in total than the $110
billion to $135 billion the Treasury still has from the
original $700 billion in TARP funds that Congress gave the
Bush Administration for bank rescues last fall. "There is a
reassurance in clarity," Geithner said at a briefing on
Thursday.

Eat your heart out, Prof. Harold Hill.

Those revelations were greeted on Capitol Hill with stunned
silence by Republicans and barely suppressed joy by
Democrats. "I believe that many of [the banks] will be able
to meet their capital needs, without further government
capital," Federal Reserve Chairman Ben Bernanke told the
Joint Economic Committee on Wednesday. Further, he said,
Administration officials "don't think there's a near-term
need" for more money from Congress. "That would be
terrific!" chirped the committee's Democratic chair,
Carolyn Maloney, of New York.

Ah...but if it were only true...and that simple. But as with most things
of this nature, the reality is quite different. But trying to bring back
the good old days with credit and the printing press does not always
work out. As Germany found out in the 1920s.

 But it's not all of it. Facts are important too, and some
think Geithner and the government are fudging them. Nouriel
Roubini, the hard-headed pessimist who foresaw the
financial crisis, wrote Tuesday in the Wall Street Journal
that the overall positive message of the stress tests
"would be good news if it were credible," but it's not. He
points to the recent IMF report that estimated $2.7
trillion in U.S. loan and security losses, and his own
estimate of $3.6 trillion for the same potential losses.
"The financial system is currently near insolvency," he
concluded. Bernanke disputes the numbers, saying banks have
"taken significant write-downs, they have reserves and
there are substantial earning capacities." But Roubini is
not alone in questioning whether the government used
appropriately pessimistic assumptions in conducting the
stress tests, especially as the financial sector faces a
potential flood of commercial real estate losses that could
mirror the residential market's recent woes.

Still, even if the numbers are based more on positive
thinking than cold hard facts, it's tough not to be
impressed by what Geithner and company have accomplished.
In addition to the boost in public confidence, they've
apparently figured out how to get the banks to support
Geithner's other iffy program, the one designed to rid
banks of toxic assets. Until now, banks have resisted
selling the highly securitized, largely illiquid toxic
assets, arguing they're worth more than the current
fire-sale prices being offered on the open market. But
taking them off the banks' books is key to restarting
lending, and the stress tests' mandate to boost capital may
be enough to get the process started.

The Treasury has given the troubled banks until June 8 to
decide how to raise that capital, and until November to do
so. Just by chance, early June is right around the time the
Treasury expects big-time fund managers to have come up
with the $500 million they need to leverage government
subsidies to purchase the toxic assets on the cheap.

All of which goes to show that whatever his faults, Tim
Geithner knows how to game America's confidence in the
banking system. But does that mean the stress tests
themselves are one big confidence game? Perhaps. The
playwright David Mamet said such scams get their name not
from the confidence the victim places in the con man, but
the trust the con man pretends to place in the victim to
elicit trust in return. By that standard, Geithner may be
the most effective con man around, for better and for
worse.

Ah yes...the old shell game and he learned it from the the masters.
The self same people who brought us this disaster. Any one for a
slightly used B flat flugelhorn ?


C