Ambinder: Oh Big Bank? Dr. Geithner Is Here To See You

[Pirate Smile]

Andrew Sullivan:

About Those Bank Stress Tests

They may well be a subtle and strategic means to pull of nationalization. Ambers:

The point here is that the administration CANNOT force broad nationalization down Congress's throats; they CAN begin to make that argument when there is proof that a major bank is insolvent. How does the administration prove this? By giving these banks physicals -- stress tests.

http://andrewsullivan.theatlantic.com/the_daily_dish/2009/02/about-those-ban.html

Ambinders:

Oh Big Bank? Dr. Geithner Is Here To See You

There is a subtlety to the Obama administration's TARP principles that needs to be made explicit.

It's an arguable point, but these so-called stress tests, which will be involuntarily given to major financial institutions, are the spark plugs for a much larger government intervention in the banking system.

My premise is that policy and politics intersect. TARP II will not be administrated in a frictionless universe.

The major question for Treasury these days is: is the problem one of liquidity or insolvency? The administration's private answer: we know that it's an insolvency problem; we'll deal with liquidity in the near term and set up a way to deal with solvency over the long-term.

The point here is that the administration CANNOT force broad nationalization down Congress's throats; they CAN begin to make that argument when there is proof that a major bank is insolvent.

How does the administration prove this?

By giving these banks physicals -- stress tests.

When it turns out that one, two, or four major banks or institutions are unquestionably on the brink of insolvency, it will be MUCH easier for the government to step in and seize them, politically and administratively. Whether this is done by some new entity, a la Sweden, or by an existing entity, like the FDIC, is unclear, probably will depend on conditions at the time.

The government has neither the capacity or capability to see all the banks. And I'd bet that many physical might simply be given some medicine -- beta blockers, if you will -- in the form of cash to keep them minimally solvent until the crisis has passed.

But others might be deemed too big too fail, and TARP II allows the government to take them over if necessary.

http://politics.theatlantic.com/2009/02/stress_tests_and_nationalization.php

[Pirate Smile]

1. kick

[RinaX]

15. I never had a problem with Geithner's plan

Many who post here and on Daily Kos hate him with a passion, and were ready to rip him apart regardless of what he announced. I was encouraged when the stocks tanked, and when he indicated that they weren't just going to start handing out money the way the last government did. The "stress test" always meant to me that they were going to see what was actually going on in the institutions and go from there. If he can isolate the real problem institutions and the bad stocks, then he can actually use the TARP II money effectively.

[FrenchieCat]

2. That's why Wall Street hated what Geithner had to say......

and why the Corporate media is attempting to ridicule him.

Those here who join Wall Street and the Corporate media in this endeavor,
should think twice.

[Pirate Smile]

5. I like the Washington Post reporter who stuck up for him and went after Wall Street because, as he

said, the pile on was just out of control and out of proportion.

Wall Street is the big villain until the Government says something and then everyone just follows what Wall Street says.

Wall Street rallying when Main Street gets the shaft is something I've seen too many times to go along with the wailing and gnashing of teeth that Wall Street did earlier in the week. Lay-offs? Outsourcing? Drop benefits? Slash pay? Wall Street rallies for these things. They never cared about the impact on Main Street until the irresponsible mortgage system came back to bite them on the ass.

[Jennicut]

9. Thank you Frenchie. There was nothing wrong with Geithner's plan

except that the Wall St. fat cats didn't like it.

[Parker CA]

3. Thanks for these links. It would be nice to see Obama and team head

in this direction.

[Bread and Circus]

4. I think the one thing Obama could do to unite liberals, right wingers, and centrists is

to clean house on the banks...

It seems everyone hates the idea of pure handouts w/ no strings attached.

[Pirate Smile]

6. kick

[Kdillard]

7. Obama knows what he is doing. He wants to build his case

before any thought of Nationalization of the Banks becomes DOA. I can just imagine the nashing of teeth from the Republicans if it is even hinted that is what is going to happen. Wall Street was scared because they have a sense what's up and it won't be good for them. Again Obama is ahead of the game.

[Spazito]

8. The immediate vitriolic response, by both the media...

and Wall $treet, to Geithner's comments told me there was a problem with the plan and it WAS NOT a problem for Main Street.

Thanks for this, very interesting reading.

Recommended.

[Pirate Smile]

10. I think a lot of people missed the nuance (not surprisingly). Krugman's not freaking out

and instead being somewhat optimistic about it should give people a clue.

[Spazito]

11. I agree and adding to that...

there are those who still believe Wall $treet is connected to Main Street and nothing could be further from the truth. It really is the BIG casino only the odds for the house are even greater.

[Odin2005]

12. If Wall Street is freaking out about it then Geither must be doing something right. n/t

[AtomicKitten]

13. I agree. n/t

[dkf]

14. For me the time bomb is credit default swaps.

I still have no idea of what kind of exposure each bank has. Those are the hugest potential money pits.

Thanks for this thread. I missed it yesterday.

[Pirate Smile]

16. That is why I kept kicking it.

:hi:

[dkf]

17. Very important stuff.

I've been watching the financial shows and no one is exploring this yet I guess because it sure does spook the markets.

The market very much wants to hear the details of the plan, yet is very scared of its impact. I wonder if even Geithner has an idea of what he will find.