The reason is, the banks are using this time to negotiate how much information about their portfolios the hoi polloi will be privy to, and are trying to get the government to reconsider its analyses (which are already iffy, since they are based on the banks' own estimates and on assumptions about the economy - including unemployment rates, and cumulative real estate and credit card losses -- that are hardly stress-inducing). This is the equivalent of a teacher giving a student a look at his grades and allowing the student to try to cut a better deal before report cards are sent home to mom and dad.
It shows how out of whack the power dynamic is when it comes to the administration and Wall Street. In the natural pecking order, regulators are above the regulated. They don't ask for permission. And they certainly are not worried about ruffling any feathers.
But for some reason -- the Wall Street-centric bias of Tim Geithner and Larry Summers, perhaps, or, as Joseph Stiglitz puts it, the government's confusion of "the notion of too big to fail with the notion of too big to be financially reorganized" -- the banks continue to hold the upper hand (see the cramdown debacle).
The delay in releasing the test results also opens the door to potential funny business, with some troubling insider-trading scenarios and a huge payoff, as David Min at the Center for American Progress points out.
We've already seen Goldman Sachs raise eyebrows with its sale of $2 billion in non-government-guaranteed bonds last week -- a move that sidestepped its agreement with the government not to disclose the results of its stress test, instead sending a signal to investors that there was no bad news in the stress test for Goldman. Of course, Goldman's receipt of $10 billion in TARP funds and $29 billion in bonds backed by the FDIC might have something to do with how well it is doing.
Goldman is typical of the banks' have-it-both-ways approach. By announcing its intention to repay the TARP money it received (thus freeing itself from government compensation restrictions) while continuing to issue government-backed bonds, the banking giant is acting like a man who wants all the benefits of being married while still being able to slip off his ring and have an affair anytime he feels the urge.
And then there is the trouble with the assumptions at the heart of the stress tests. As Nouriel Roubini put it: "These are not stress tests but rather fudge tests... The results of the stress tests -- even before they are published -- are not worth the paper they are written on."
Tuesday, May 05, 2009
From today's Huffington Post: