naked capitalism

The financial crisis has gone enough rounds to have evolved from tragedy into farce. The stress tests are a prime example.

It’s hardly news that some banks are mucho unhappy with their grades. Wells Fargo and US Bank were complaining about the tests even before they began, clearly anticipating less than stellar scores based on the metric. Bank of America and Citi are known to be negotiating, arguing that they don’t need the capital raises suggested.

It’s hard to discern at a remove how much of the peevishness is the discovery by banks that they have little to lose in behaving like utter pigs. We saw it today with the failure of the bankruptcy mod bill in the Senate (even after concessions had been offered). Admittedly, Chrysler was a partial exception, since the Treasury made considerable economic concessions, but finally drew the line and put the company into bankruptcy. However. Team Obama wanted to make a show to prevent even worse shenanigans with GM (but the New York Times points out that the pre-pack could take as long as four months, hardly a quick in and out, and some bankruptcy lawyers have pointed out that other deals expected to be fast track have taken a year).

But let’s face it, in a real test, you don’t get to score it yourself and then argue the grade. The banks fundamentally don’t seem to accept that they are regulated entities and expect to be treated as equal partners. Given the likely decay in employment given the weakening fundamentals, all the Treasury is doing is getting the banks to face the music perhaps six months ahead of time, which is something they should be doing on their own.

But the flip side is this is yet another Geithner miscalculation. He wants to look tough on the banks, yet starts waffling when the banks get in a tizzy and presumably invoke images of market mayhem. But the use of the word “test”, meant to reassure that there was indeed a method, led to demands for transparency. As much as I am a fan of disclosure in general, this is an area where less would have been more (although leaks make that a tough approach to maintain).

From Bloomberg:

The Federal Reserve is postponing the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified. A new release date may be announced as soon as today, they said.

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.

“Everybody understands they’ve got a tiger by the tail here,” said Mark Tenhundfeld, a senior vice president at the American Bankers’ Association in Washington. “If they don’t let him go gently, there will be a lot of mauling going on.”

Given Timmie’s problems with meeting deadlines, I wouldn’t hang my hat on the end of next week timeframe.

From Bloomberg: