The Big Banks’ FDIC Boondoggle
In her post on the changing plans to release stress test results, Yves congratulated the Administration for planting a story that blamed everything on Goldman.
Back to the New York Times:
While all of the banks are expected to pass the tests, some are expected to be graded more highly than others. Officials have deliberately left murky just how much they intend to reveal — or to encourage the banks to reveal — about how well they would weather difficult economic conditions over the next two years….
Yves here. That means this is being negotiated. Wonder if the Times story was leaked to box the banks in and (as you will see later) blame it on Goldman. If so, this crowd would be playing a much smarter game than I have given them credit for (the "Goldman made us do it" part, the leak alone is a more predictable move). And this story was clearly planted. The Times reports it came from "senior officials"; as we noted, the Journal also has a story up.
Keep that in mind as you review coverage–both in Sanger’s story on the stress tests, and in a completely separate story–of FDIC backed lending. Sanger sort of throws the reference in at the precise point most designed to blame Goldman Sachs for forcing the Administration’s hand on the stress tests.
The Goldman move also puts pressure on the administration to decide what conditions will apply to institutions that return their bailout funds. It is unclear if Goldman, for example, will continue to be allowed to benefit from an indirect subsidy effectively worth billions of dollars from a federal government guarantee on its debt, a program the Federal Deposit Insurance Corporation adopted last fall when the credit markets froze and it was virtually impossible for companies to raise cash. In ordinary times, regulators do not reveal the results of bank exams or disclose the names of troubled banks for fear of instigating bank runs or market stampedes out of a stock. But as top officials at the Treasury and the Federal Reserve Bank focused on the intensity with which the markets would look for signals about the nation’s biggest banks at the conclusion of the stress tests, the administration reconsidered its earlier decision to say little.
“The purpose of this program is to prevent panics, not cause them,” Read more →