Elizabeth Warren, chair of the TARP oversight panel, must not be on the White House email list. Is she was, then surely she wouldn’t be recommending that the U.S. government rerun its controversial “stress tests” on the nation’s largest banks. Warren rightly notes that the current 9.4 percent unemployment rate already exceeds the test’s 2009 worst-case scenario of 8.9 percent and is bearing down hard on the 2010 worst-case rate of 10.3 percent. “We have not actually broken through the worst-case scenario, but let’s face it, the numbers are bad and they’re heading in the wrong direction,” she told the Joint Economic Committee of the U.S. Congress.
Yet the White House message team would have us believe that the jump in unemployment is actually not-so-terrible news since a) the jobless rate is a lagging economic indicator, and b) one reason the number rose so sharply last month was because more folks are getting off the couch and actively looking for work. If the labor force had stayed steady, the unemployment rate would have been 8.7 percent.
Of course, the U.S. economy is still hemorrhaging jobs — 345,000 last month — and many analysts think the bleeding will continue. The Federal Reserve Bank of San Francisco, for instance, forecasts unemployment near 11 percent next year. But it’s not as if Team Obama doesn’t know this. And when you factor in that certain awareness with its willingness to let banks replay $68 billion in bailout funds (“A sign of health of the financial system,” said Obama adviser Austan Goolsbee), it’s reasonable to conclude that the White House has run its own informal, updated stress tests and already calculated that the worst-than-expected economic conditions won’t force those institutions to return for more taxpayer dough. That is a scenario Obama is eager to avoid.
Yes, rising joblessness will mean more bad loans to individuals. And commercial mortgages don’t look so hot either. But the super-steep yield curve is great for bank earnings, as is the relaxation of mark-to-market rules. Moreover, the case for new stress tests is no less dodgy than the case for the original ones. Remember that when Treasury Secretary Timothy Geithner announced the tests back on Feb. 10, the Dow Jones industrials fell nearly 400 points as investors interpreted the move as a prelude to bank nationalization. Instead, they turned out to be a poorly executed exercise in investor relations to show Uncle Sam proactive in dealing with Wall Street. Pass-pass instead of pass-fail with many key financial details unavailable to the public. (“Show us the spreadsheets!,” said banking analyst Bert Ely of the lack of data granularity.) The market didn’t fully recoup its losses until early May.
Rerun the stress tests? That really would be heading in the wrong direction.
Let’s imagine how a modern writer-employee/news-boss meeting plays out at a typical major news organizational today.
Boss — you know, it would really be in the best interests of your career here if you took the view of our owners into account when you write your stories.
Writer-employee — Ahhhh… I understand completely (i.e. I need a steady income ’cause I’ve got all these bills and new news gigs aren’t a happening. Therefore, I’ve no choice but to toe the line and write to company line).
Could it be any less apparent what’s happening?
Reuters…you RUIN any credibility you once had when you do “hatchet” jobs such as this one.
Elizabeth Warren seems to be a singularly honest & competent person. As such, I imagine she’s a real burr in the side to many in the U.S. government.
Government in turn lets it corporate backers know it’s intent on who should be denigrated so as to remove them from public view. And thus…this pressure builds where character assassination is taking place.
SHAME on you Reuters for crumbling to the pressure.