From TPM Reader KA …
I’m not saying that is what they are doing, but a more bold presentation by Geithner, and a more “pro-Sweedish model” statement by Obama would have been like Lincoln and Grant announcing Sherman’s March before he started it. First, I doubt that Geithner would announce it because of its impact on the market and its collateral damage on the shares of banks that are well positioned. Also, it would feel like “nationalization” which sounds like a political no-no. Finally, it might lead the troubled banks to subtly or not so subtly mask their troubles or “stresses”.
This leads to the question: what are the tactics by which one would implement a “seize and purge” strategy of insolvent banks?
Wouldn’t you want to announce these stress tests, find out which banks are really underwater and THEN “seize” (better semantics than “nationalize”) those banks. At that point, you would roll out the PR that the Resolution Trust Corporation is your model. Again, i’m not syaing this is what they are doing, but the collection of valuable intelligence is always key to a successful surprise attack.
I don’t think that’s what they’re doing either, not consciously at least. But I take the point that I doubt you ever announce this as a strategy. You just do it. The scramble between when everyone knows it’s coming and when it happens would be too hairy.
Also, rather than ‘nationalization’, if that’s going to come, probably a more logical name for it is: do we let the bank regulators say that Citibank is insolvent and have the FDIC come in and seize it? And not just Citi but a few other banks too. And there’s more talk that that could be where this “stress test” will end up.
