“More Quickly Than It Began, The Banking Crisis Is Over” declares longtime financial journalist Douglas McIntyre in a column posted this morning on the TIME website. Well miracles of miracles! Noting yesterday’s news from Wells Fargo that the bank made more than twice analysts’ projections during the first quarter and the positive buzz about the progress of the Treasury Department “stress tests” being run to assess banks’ abilities to withstand further economic downturns, he wonders why the heck they’re bothering to run “stress tests” at all. Isn’t it obvious we’re out of the woods?
Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well. The same holds true for the Geithner plan to take toxic assets off bank balance sheets. It is academic now. What banks are earning from the difference between the cost of capital and the income from lending is now great enough for the banking system to be self-sustaining again.
Hallelujah, but: zombie banks don’t rise from the dead every day. On CNBC this morning CEO Howard Atkins credited Wachovia, the bank it hastily acquired in the thick of the panic of ’08, for bringing the good news. And indeed, an analyst tells Forbes the Wachovia deal has been much more auspicious than experts initially expected, when Wells told analysts it anticipated writing down $10 billion in bad and “non-performing” loans held by Wachovia; thus far, they’ve only had to write down $77 million.
There’s probably a very good reason for that, according to mortgage blogger Ken Watson — the Financial Accounting Standards Board just relaxed mark-to-market accounting restrictions, meaning Wells can value those loans a bit more creatively than before.Still, we wonder if McIntyre isn’t a tad premature with his latest oracle. After all, as his column of three weeks ago pointed out, creative accounting can’t collect rent from a half-finished skyscraper, and a lot of those assets might never “perform”:
The experts who really know the banking industry believe that there are still hundreds of billions of dollars or write-offs walking around the financial system waiting for big banks to run into them.
And while the earth may have been created in a week, the crisis has been looming at least since Alan Greenspan and Bob Rubin committed the original sin of claiming that derivatives traders could regulate themselves.