Month: May 2009

Grading The Stress Tests

A mini econoblogger round up. James Surowiecki:

Treasury’s report on the stress tests says that the banks’ total losses through 2010 (including the losses suffered in 2007-2008) could total $950 billion. That’s close to the I.M.F.’s estimate that total losses for U.S. banks from the financial crisis will be $1.1 trillion. It’s close particularly when you consider that the I.M.F. was estimating losses for all eight-thousand-plus banks in the U.S. system, while Treasury’s number is only an estimate for the losses of the aforementioned nineteen biggest banks. Taking that into account, Treasury’s numbers look very similar to the I.M.F.’s, which at least suggests that the government used reasonable projections of future losses, and did not, as many feared, rig the tests to make the banks look good.

Justin Fox:

The stress tests—and the attempts at raising capital that will follow—are about determining which banks are to become largely wards of the state (as Citi already is), and which deserve to escape from direct government control sooner rather than later. From the panicked, throw-money-at-them-all approach that prevailed last fall, we're now moving to a more selective one that separates winners from losers. That is as it should be, and the oft-heard criticism that the stress tests made it too easy to be a winner—because the "adverse" economic scenario contemplated in the tests was far from a worst case—doesn't take anything away from the fact that it's useful to know the relative scores.

Wonk Room:

…this whole song-and-dance means that the banks are still operating with a government guarantee, but without government control. They can go out and try to raise money, and investors know that the government is going to cover them if things go badly. The plan assures that the banks will remain alive, no matter how troubled, because Treasury will always swoop in to save the day.

Free Exchange:

Testing for solvency under extreme scenarios is a tricky and opaque process. Unless markets trust the government to be impartial, it ultimately provides little clarity on the state of the banks' balance sheets. One of the few insights we did gain from the tests was that nationalisation appears to be off the table. But the government took a big gamble on this one.

H1N1 Update

Effect Measure looks at where we are. So does The Pump Handle:

The news is better than many of us feared it would be — but that doesn’t mean that governments and the WHO overreacted. If not for the dramatic measures that Mexico and other governments imposed, our situation right now would probably be worse. How much worse? Maybe only a little worse (a few hundred more people feeling miserable for a week, a few dozen more hospital emergency rooms overstretched), but possibly a whole lot worse. The flu virus that’s circulating in the US right now appears to cause relatively mild illness, but if it circulated through a wider population over a longer time period, it would mutate further and could become far more virulent.

The Lies Of Presidents

It occurs to me that the two most famous statements of the last two presidents will be "I did not have sexual relations with that woman," and "We do not torture." And both were lies in plain English, were understood to be lies by the two men involved, and yet both were subject to mental and legal asterisks that could give both men some kind of formal, if absurd, deniability.

For one statement, we impeached. For another, we kept on walking.

Sometimes history is not tragedy repeated as farce; it's farce repeated as tragedy.

The Least We Can Do, Ctd.

A.L. seconds Hilzoy:

The most important question in my mind is not what kind of punishment the various bad actors deserve, but what steps can be taken to minimize the chances of this ever happening again.

The OLC lawyers played an indispensable role in allowing these illegal torture and surveillance programs to be implemented.

The White House and CIA would not have pressed forward with these initiatives (at least for a sustained period of time) without the blessing of the OLC. So the key to preventing this kind of illegality in the future is to up the stakes for future OLC attorneys, to make them understand that there are potentially significant consequences to intentionally distorting the law. Disbarment would serve that purpose fairly well. If future OLC lawyers know that they might be disgraced and lose their livelihood if they distort the law, they'll be far less likely to do so. And that's the key. As much as I think that some of these attorneys deserve to be prosecuted criminally, there's very little precedent for that kind of prosecution and such cases would be very, very hard to prove. Disbarment, however, is a realistically attainment penalty, and one that would serve as a significant deterrent to future illegality.

The SBC On Torture

Finally:

It violates everything we believe in as a country," Land said, reflecting on the words in the Declaration of Independence: that "all men are created equal" and that "they are endowed by their Creator with certain unalienable Rights."

"There are some things you should never do to another human being, no matter how horrific the things they have done. If you do so, you demean yourself to their level," he said. "Civilized countries should err on the side of caution. It does cost us something to play by different rules than our enemies, but it would cost us far more if we played by their rules," Land concluded.

He was also clear that waterboarding is categorically torture. So the core religious body of the Christianist right has now taken a stand. Against. And torture is a war crime. And war crimes must be prosecuted.

The Memo Trail

More possible clues about the OPR report from Murray Waas:

The investigators closely tracked drafts of the four legal opinions until they reached final form. In some instances, the drafts changed progressively over time to afford those who wanted to engage in aggressive interrogation techniques additional legal cover, according to people who have read the draft OPR report. One source indicated that at least two of the earlier drafts were "equivocal" and "nuanced" — but noted over time they became "more advocative" of the views of then-Vice President Dick Cheney and others in the Bush administration that aggressive interrogation techniques were necessary to prevent new terror attacks.

If that evolution occurred alongside emails from the White House explaining their desire for more and more torture, then the case that the legal cover was rigged gets much stronger. When you take a few steps back, this seems obvious to me. But the documentary proof is harder to nail down with characters as slippery as these.

The Auto Bailout

Posner thinks it worked:

At a relatively modest, though by ordinary standards very large ($17 billion), cost to the government, the auto companies were kept out of bankruptcy until the acute psychological phase of the economic crisis had passed. Last December, and indeed until sometime in March, government officials, the media, and the public were understandably fearful that the economy was in free fall and might land somewhere near where the economy had landed in March 1933 (25 percent unemployment, output 34 percent below the GDP trend line, 18 percent deflation). Such a fear can constitute a self-fulfilling prophecy, because by causing consumers and producers to hoard cash rather than to spend, it can push the economy into a very deep downward spiral. That fear has now abated.

Testing The Banks

Daniel Gross doesn't put much stock in the stress tests:

… the government wants banks to pass to show they can raise capital from the private sector, if needed, and to show they can issue debt that isn't guaranteed by the government before they're allowed to pay back their TARP money. In other words, the feds want banks to prove to the world that the market views them as viable financial institutions that can function without taxpayer-provided crutches. Ultimately, that's a market test, not a government test.