Google the expression “damned if you do, damned if you don’t,” and a picture of Timothy F. Geithner ought to pop up. The Treasury secretary embodies everything that’s perceived to be wrong with the government’s response to the economic and financial crisis. Since taking the Treasury job, he has been a lightning rod for criticism. And it’s about to get worse.
In the next week, as the Treasury and Federal Reserve complete their closely watched stress tests on the largest U.S. banks and announce how they will proceed to keep the financial system functioning, Geithner will assuredly come in for new blasts from all points on the political spectrum. The potential for this stress test process to add to the economy’s woes is significant. And no matter what he does, it will be judged wrong by someone.
From critics on the left, Geithner has already drawn flack for not moving aggressively to nationalize the biggest banks — at least those that are seen as the most unstable. Because the potential collapse of these tottering institutions poses an enormous risk, the thinking goes, government regulators should take them over now and run them for the benefit of the public — before they can do even more damage.
From the right, the fear is that nationalization is exactly what Geithner intends. Whether by design or by default, the Treasury might end up as the biggest holder of common stock in some of these banks and would possess the ability to dictate their operations in ways that even the most aggressive regulators never could.
Criticism of the stress tests — and fear about where they will lead — comes even from precincts that are relatively politically neutral. For instance, the decision to release details about these high-profile reviews of bank books was a mistake, says longtime bank stock analyst Richard Bove of Rochdale Securities in Lutz, Fla.
In a note last week to his clients, Bove said the reviews may reveal potential losses on various types of loans of between 4 percent and 6 percent in each of the next two years, and up to 10 percent on credit cards. That’s several times the level of losses ever experienced, he said. The result could be a mandated pullback in the availability of credit, which would further sink the economy.
Geithner has put himself in a box, Bove argued in an e-mailed elaboration. If the stress tests show big troubles, shareholders and depositors alike might flee those institutions, leading to failures of weak banks and takeovers by the Federal Deposit Insurance Corporation. If the tests show little immediate problem, the public and the rest of the financial system won’t trust the results.
“There is no good exit strategy here,” Bove wrote. “The history of bank regulation is clear, the results of bank audits are not to be made public. The reason is that the potential for panicking the public is high.”
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Damned If You Do…..
Google the expression “damned if you do, damned if you don’t,” and a picture of Timothy F. Geithner ought to pop up. The Treasury secretary embodies everything that’s perceived to be wrong with the government’s response to the economic and financial crisis. Since taking the Treasury job, he has been a lightning rod for criticism. And it’s about to get worse.
In the next week, as the Treasury and Federal Reserve complete their closely watched stress tests on the largest U.S. banks and announce how they will proceed to keep the financial system functioning, Geithner will assuredly come in for new blasts from all points on the political spectrum. The potential for this stress test process to add to the economy’s woes is significant. And no matter what he does, it will be judged wrong by someone.
From critics on the left, Geithner has already drawn flack for not moving aggressively to nationalize the biggest banks — at least those that are seen as the most unstable. Because the potential collapse of these tottering institutions poses an enormous risk, the thinking goes, government regulators should take them over now and run them for the benefit of the public — before they can do even more damage.
From the right, the fear is that nationalization is exactly what Geithner intends. Whether by design or by default, the Treasury might end up as the biggest holder of common stock in some of these banks and would possess the ability to dictate their operations in ways that even the most aggressive regulators never could.
Criticism of the stress tests — and fear about where they will lead — comes even from precincts that are relatively politically neutral. For instance, the decision to release details about these high-profile reviews of bank books was a mistake, says longtime bank stock analyst Richard Bove of Rochdale Securities in Lutz, Fla.
In a note last week to his clients, Bove said the reviews may reveal potential losses on various types of loans of between 4 percent and 6 percent in each of the next two years, and up to 10 percent on credit cards. That’s several times the level of losses ever experienced, he said. The result could be a mandated pullback in the availability of credit, which would further sink the economy.
Geithner has put himself in a box, Bove argued in an e-mailed elaboration. If the stress tests show big troubles, shareholders and depositors alike might flee those institutions, leading to failures of weak banks and takeovers by the Federal Deposit Insurance Corporation. If the tests show little immediate problem, the public and the rest of the financial system won’t trust the results.
“There is no good exit strategy here,” Bove wrote. “The history of bank regulation is clear, the results of bank audits are not to be made public. The reason is that the potential for panicking the public is high.”
READ THE ENTIRE COMMENTARY AT http://www.cqpolitics.com/wmspage.cfm?parm1=5