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Will Government Pass its Own Stress Test?

By Linda Anselmi on April 17, 2009 at 5:05 PM in Current Affairs, Elizabeth Warren

elizabeth-warren Elizabeth Warren, chair of the congressional oversight panel tasked with overseeing the spending of TARP funds, concluded her recent interview on Morning Joe (video below) with this statement, “if we don’t keep the American people as part of the conversation, the decisions that will get made, will not be the decisions that are best for them. And that’s what matters.”

This struck me as a profound statement. Not just as reflection of how our government, media and citizens should perform in general. Or on this matter in particular. But as a indication of where we are at, in this moment in time, as a nation. That these stress tests are not just about banks, their assets and their results – good or bad. These stress tests have now become something of a stress test of our government. And we are anxiously awaiting the results.

Will our government be honest in its actions and truthful in its words? Will our government treat the American people as true and active partners in our government? Or will we be shut out of the process and delegated to the role of viewing audience?

I don’t know whether our government will pass or fail this stress test. I only wish I was more confident of a positive result.

So what do you think – Will our government pass its own stress test?

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Since regulators are set to release stress test results on 19 of the biggest U.S. banks on May 4th and a paper on the methods used on the stress tests on April 24th, it seemed fitting to review the goal of the stress test and what is at stake with the results. Not just for the banks, but all the rest of us. A subject on which both Elizabeth Warren and Eliot Spitzer, also a recent guest on Morning Joe, had more than a few worthy insight.

From Bloomberg:

The results of next month’s stress tests are designed to provide clarity for the market, by eliminating uncertainty about the financial health of banks, said White House economic adviser Jared Bernstein. “They want to know that this diagnosis is going to provide useful information about the health of the balance sheets of the banks,” Bernstein said in an interview with Bloomberg television today.

The tests are designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets, which have hampered lending to consumers and businesses.

In their assessments, regulators will look at off-balance- sheet commitments, earnings projections, risks of the banks’ business activities and the composition and quality of their capital, according to the Treasury.

The exams will help provide a ranking of the financial health of “one institution relative to another,” Frederic Mishkin, a Columbia University economist and former Fed governor, said in a Bloomberg television interview. “That can be very useful if government then decides it needs to take steps to deal with weak institutions.”

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Visit msnbc.com for Breaking News, World News, and News about the Economy

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Visit msnbc.com for Breaking News, World News, and News about the Economy

jbjd

I have said this here before, when Professor Warren talks, I listen.
politicalidentitycrisis

Warren is speaking up for the people? Expect her head on the chopping block. You are not allowed to speak against Dear Leader. Now she will be labeled racist. Did she miss the memo????
http://noquarter foxyladi14

yep she missed the memo..
jbjd

OMG. I made this comment even before I saw this video, based only on LA’s quote. I just watched the video… she is fabulous! (What a novel idea that, when you have a problem, research how other similarly situated countries have responded to these problems and then determine how to proceed. (I was also impressed with how quickly Morning Joe grasped the Professor’s explanation of the process, and his emphasis on her point that, the priority of any bailout program has to be, the best interest of the country and not government officials or bank executives.)
oowawa

An objective third party, like a physician, is supposed to perform a “stress test.” Does anyone really trust the government’s objectivity in performing a stress test on a bank? I don’t.

In fact, it’s getting so I really don’t trust the truthfulness of the government at all. Who does? Clap your hands and bark like a seal . . .

Crickets.
Peggy Sue

Good piece, Linda. I’m so glad you featured Elizabeth Warren, who I find extremely easy to listen to because she speaks in real English and is able to break things down in understandable units. What are the two basic things we need from these financial institutions? Clarity and accountability. What have we been getting? Smoke screens and finger pointing.

Spitzer also made some very good points and voiced exactly what I fear most: we’re simply reconstructing the same failed model. Morning Joe is about the only MSNBC show I can bear to watch. He’s willing to give a round robin viewpoint. If only his colleagues would follow suit!

As far as answering your question: I have a feeling these stress tests will not pass muster. But knowing Warren and her panel will be reviewing the reveal should give us some hope. We’ll find out what’s behind the curtain for good or ill. And then, the fur should begin to fly.

Thanks for the info!
NoBamaNoWay

yep. the report will be a whitewash. surprise, surprise.
jbjd

LA, thank you for providing these clips from MSNBC,G which I have not watched since the primary. (Former NY Governor Spitzer rightly characterized this bailout as trying to re-form the same system that got us into this mess!)
Ani

Amen. I was not familiar with Professor Warren, but she is indeed wonderful and presents a very reasoned, non-partisan view. Let us hope her voice is not silenced and that she gets the access at Treasury that she requires to do the job properly.
oowawa

Peggy Sue, I think Elizabeth Warren is well-intentioned. I want to like her and take her at face value. She seems to be in the dark as to the explicit results of the “stress tests.”

I expect the info from the “stress tests” will be spun and manipulated to benefit the banks and keep the financials moving upward in the stock market. I do not think we are going to find out “what’s behind the curtain for good or ill.” I do not think the fur is going to fly. I think they will push the deceit as far as they can and make as much hay as they can while the sun shines.

And then, and then . . .
candymarl

Excellent videos. Even I could understand our economic situation the way Ms. Warren explained it.
choo choo magoo

I was also impressed with how quickly Morning Joe grasped the Professor’s explanation of the process, and his emphasis on her point that, the priority of any bailout program has to be, the best interest of the country and not government officials or bank executives

I agree jbjd – its amazing how much the “best interest of the country” is assumed to be aligned with the interest of government and/or wall street. We’ve lost our seat at the table.
Diana L. C.

Did everyone see the Jon Stewart interview with her yesterday. It was great! I laughted but knew I should be crying instead.
oowawa

Here’s for your “clarity” and “accountability” in the stress tests. This afternoon Market Watch published an article on what is expected from these stress tests, subtitled “Neither government nor banks will disclose key details about loan portfolios.” I’m not going to try to paraphrase the article, but the gist is that we are simply not going to see “clarity” nor “accountability.” Results will be kept confidential. “The Fed understands that you don’t want to create winners and losers out of the results.” And, “neither regulators nor the banks will provide the kind of details the markets and analysts want.”

If you want to read the article, here it is:

http://www.marketwatch.com/news/story/Pessimistic-scenario-gains-influence-bank/story.aspx?guid={D8144872-A7A2-4323-8AF3-E5454E77DEA8}
Peggy Sue

I sincerely hope this is “not” the case, oowawa. But Elizabeth Warren is not the only critical eye that will be on these reports. I understand Roubini and Stiglitz [an Goolsbee economic hero] have had scathing remarks in terms of what Treasury is doing. It a nutshell it’s been said that the Treasury and Feds are either in cahoots with the banksters or totally incompetent.

Neither choice is good. Not for them or us.

I still think the economic situation is the administration’s Achille’s heel. They will live or die with the results.

But then again, we all might. Not a good situation. But I like Warren and her clear and direct approach. I hope she stays on top of it.
oowawa

Yes Peggy Sue, some very shrewd, critical and sharp eyes will be watching this, Roubini, Karl Denninger, and many others. This does give me hope that everything will not stay hidden.
Linda Anselmi

I missed it. Thanks DLC. I’ll check it out now.
Peggy Sue

I just pulled those Jon Stewart clips up. I don’t think it helps going on a comedy show because this stuff is simply not funny. I’ve listened to Warren in a number of news venues and have always thought she was very, very good.

But here, particularly in Pt 1, her credibility is completely compromised. She looks and sounds as doofy as Stewart.

I wish these people would forego the Comedy Central route or Leno/Letterman. Wait for some positive news before acting like clowns.

Disappointing!
Glennmcgahee

I also heard the stress tests result intentions on NPR. Apparently, only bits and pieces are to be released, little at a time. Not a whole picture. They are afraid the results will give each bank’s competition an edge and that just wouldn’t be fair. So it’ll be enough to say they did them, we just don’t get the true results. Funy, I thought competition is what capitalism is all about. No wonder we have price fixing. At least there should be a correction as a result of what has occured regarding market value. Otherwise, we’d all be priced into cardboard boxes and starvation eventually.
lee12

“if we don’t keep the American people as part of the conversation, the decisions that will get made, will not be the decisions that are best for them. And that’s what matters.”

Yep, the wall street fat cats and performance/ efficiency experts together have nearly perfected their ideology and have determined that owning a business is the least efficient way to make money. What with all the production costs, human resources costs, health insurance costs, and other expenses.

Say goodbye to the wealth exchange mechanism called “the job.”

No doubt, the elite thinks it is a brilliant idea. They can make money while playing golf or sleeping. Just one little detail they overlooked, the American people!

Warren’s comment above reminds me of the tale of the Dutch boy who had his finger in the dyke.
http://shadowedforest.wordpress.com/2009/04/25/recession-progress-not-really/ Recession Progress? Not Really « A Glade in the Shadowed Forest of World Politics

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