The Bank Stress Test Hustle

The process may tell us as much as the results, which are finally due later this week after many false starts.

The delays themselves indicate the government is negotiating stress-test grades with the recipients, and now a series of leaks has economists worried about the manipulation that is going on. What kind of truth will we see in this hall of mirrors?

Two headlines in the Wall Street Journal today encapsulate the doubts and fears: "More Banks Will Need Capital" and "We Can't Subsidize Banks Forever."

The latter proposes that banks be forced to sell all toxic assets, rather than cherry-pick them for cosmetic purposes, and that the government take tighter control in return for bailouts:

"(T)he government should stop providing capital, loan guarantees and financing with no strings attached. Banks should understand this. When providing loans to troubled companies, they place numerous restrictions, called covenants, on what these firms can do. These covenants generally restrict the use of assets, risk-taking behavior, and future indebtedness. It would be much better if the government focused on this rather than on its headline obsession with bonuses."

Meanwhile, as they always do, banks are paying off their shareholders while starving depositors with close-to-zero rates on their money.

A new study shows that "banks only marginally reduced dividends in the first 15 months of the crisis, paying out a staggering $400 billion in 2007 and 2008. While many banks have been reducing their dividends more recently, bank bailout money had been literally going in one door and out the other."

Among the big banks that will be at the government trough again after test results are announced will be Wells Fargo, partly owned by Warren Buffett, who at his stockholder meeting last week touted its strength and wished that he were legally allowed to own more of it.

Maybe the government should find a way to let that happen. Better him than us.

Bank Rescue: Tim Geithner's Times

The Treasury Secretary is announcing his plan to save the banks this morning, but the New York Times has it all before he says a word.

A front-page story reports that "Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

"He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid."

On the editorial page, David Brooks, without bothering to tell us how he knows, offers Geithner's thinking about the process with direct quotes:

"The key, he says, is to create 'massive, sustained and substantial macroeconomic policy' that would pump capital into markets to get them working again. The heart of his program is a series of public-private investment funds...One would acquire toxic assets. One would foster consumer and small-business lending. 'There’s a lot of private capital out there that wants to come in. It just can’t get the financing,' Geithner insists. The new programs would encourage private investors, and then once the markets are unfrozen, would 'get out as quickly as possible.'”

With all this inside information, it's not surprising that Brooks finds "Geithner’s plan is huge but also disciplined. It’s designed by someone aware of government’s limitations."

If Treasury's attempt to make its new bank rescue plan seem tempered rather than toothless is half as successful in the real world as it already is with the newspaper of record, we can all stop worrying without bothering to listen to what Geithner himself has to say today.

Who knew it was going to be this easy?

The Prince of Dimness

That noise in the background is Robert Novak, the self-styled Prince of Darkness, doing what he always does--nipping at politicians while barking away to call attention to himself.

Instead of slinking off after his Valerie Plame dump on the national carpet, the old dog is still up to his ancient tricks, this time befouling Presidential candidates of both parties.

Weekend before last, he stirred up a Clinton-Obama spat by writing that "agents" of the Clinton campaign had been "spreading the word in Democratic circles that she has scandalous information about her principal opponent." After smearing both Democrats with anonymous dirt, Novak went on Fox News to stand by his "scoop," while admitting it came to him third-hand with no confirmation.

This week Novak is outing Mike Huckabee as a "false conservative" who is really "a high-tax, protectionist, big-government advocate of a strong hand in the Oval Office directing the lives of Americans."

After half a century of "reporting," Novak seems to get most of his dope over expense-account lunches these days and, judging from his past gushes over Fred Thompson, the Huckabee smear may be coming from that direction.

Come to think of it, the canine metaphor may be misplaced. Novak is more of a handy hydrant for political operatives' leaks.