Trying to second guess reaction to news during this financial crisis has been a fraught exercise and the U.S. Treasury may have a few advisers playing game theory to assess the impact of results from bank stress tests.

The tests are an attempt to determine which banks can survive more trouble, and who can’t. And how big any balance sheet holes might be. The results are due out on May 4.

If the results look too good, the process will look like a whitewash. Too negative, and it will destabilise still-jumpy markets. Yet showing up problems at one or a few banks could hang them out to dry.

The plan may have been to keep results secret, but that’s unrealistic. Shares in Britain’s Barclays soared last month when its regulator gave it an all-clear. That boosted all the UK sector, but then Barclays was almost alone in the spotlight — its rivals had either already been bailed out or had comfortable capital positions.

In the U.S., there are 19 banks to handle. It could be a PR nightmare and maybe one policymakers should have seen coming. Tim Geithner may end up on the back foot, just as he tried to get ahead of the crisis.

Or he may just opt to play hardball with the weaker banks. At least a transparent process will remove uncertainty from the stronger names.

Government-backed lending programs around the world have sparked a revival in financial and corporate borrowing — for now. Worldwide sales of corporate bonds rose to $251 billion in January, the highest level since May 2008, marking the first signs of a thaw after a long global capital markets winter. The following are the global sales totals and a list of the biggest borrowers, according to Thomson Reuters data.

Read the full story here.

Top Temporary Liquidity Guarantee Program
(TLGP) Issuers

Corporate and Government Guaranteed Debt - Global

If there’s one thing you don’t want to be, it’s the next Iceland.

Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.

Within weeks, banking problems and currency falls meant Hungary was being hyped as a “second Iceland”, at least until a joint International Monetary Fund and European Union rescue package restored some stability.

Next to win the unwanted comparison was Ukraine.  Having lost at one stage half its value, the currency has somewhat stabilised — although most foreign investors are very hesitant to hold Ukrainian assets again.  And like Iceland itself, Ukraine is now dependent on an IMF lifeline.

Now, it is Britain in the limelight.  The New York Times as well as Britain’s Observer and Daily Telegraph newspapers have all made the comparison in recent days.

For people earning and saving in sterling, it is an uncomfortable place to be and nervousness is to be found in the strangest of places.  During a recent visit to a podiatrist, a Reuters correspondent found the conversation punctuated with speculation about the possibility of an IMF bailout for Britain and angst over cutbacks in the National Health Service footcare budget.

Wall Street’s cheering the Paulson Plan - a multi-billion-dollar taxpayer-funded effort to contain the credit market crisis. But a backdraft is underway in the blogosphere. Strategist-blogger Barry Ritholtz lays it out here in The Big Picture:

We now see that the grand experiment of deregulation has ended, and ended badly. The deregulation movement is now an historical footnote, just another interest group, and once in power they turned into socialists.

Comments rolling into Calculated Risk are uniformly negative, with the two presidential candidates coming in for some scorn for supporting the asset relief plan.

A temporary ban on short-selling from the SEC is drawing some arrows as well from Zac Bissonnette in BloggingStocks:

It’s clear why the SEC is now banning it: this isn’t about leveling the playing field or making the market more fair or efficient. This about the SEC using its power to manipulate the market upward.

Some close to the Street were critical of the ramifications too. “Wall Street has discovered a great business where the upside is potentially unlimited, but the downside is ultimately put on the taxpayers’ tab,” Cary Leahey, economist and managing director of Decision Economics told Reuters.