Sense on Cents

Recall how Hank Paulson compelled every major money center bank to accept government funds via the TARP last Fall. Paulson was concerned that if every institution did not participate in the TARP that the market would punish those institutions receiving funds.

The lack of delineation then and still now is creating stress for individual institutions and the market as a whole. Why? Markets thrive on two factors: capital and information. We have witnessed over the last year what a lack of capital in the form of credit has meant for the economy. We are also experiencing what a lack of information means.

Whether it is industrial and tech companies not providing guidance about their future earnings (GE, Intel just yesterday), banks utilizing relaxed mark-to-market accounting, or now banks being lumped together on Bank Stress Test results, the markets are sufferring as a result.

Are we seeing a version of the classic scene in a A Few Good Men? Who can ever forget this exchange?

Jessep: You want answers?
Kaffee (Tom Cruise): I think I’m entitled to them.
Jessep: You want answers?
Kaffee: I want the truth!
Jessep: You can’t handle the truth! Son, we live in a world that has walls. And those walls have to be guarded by men with guns. Who’s gonna do it? You? You, Lt. Weinberg? I have a greater responsibility than you can possibly fathom. You weep for Santiago and you curse the Marines. You have that luxury. You have the luxury of not knowing what I know: that Santiago’s death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives…You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me on that wall. You need me on that wall.
We use words like honor, code, loyalty…we use these words as the backbone to a life spent defending something. You use ’em as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom I provide, then questions the manner in which I provide it! I’d rather you just said thank you and went on your way. Otherwise, I suggest you pick up a weapon and stand a post. Either way, I don’t give a damn what you think you’re entitled to!
Kaffee: Did you order the code red?
Jessep: (quietly) I did the job you sent me to do.
Kaffee: Did you order the code red?
Jessep: You’re goddamn right I did!!

Can the markets handle the truth? The problem Uncle Sam has created is that market participants are questioning the validity and integrity of the news being delivered. The WSJ offers as much this morning, in Banks Await Stress-Test Results:

some within the administration believe a certain amount of information needs to be released in order to provide assurance about the validity and rigor of the assessments. In addition, these people also are concerned that the tests won’t be able to fulfill their basic function of shoring up confidence unless investors are able to see data for themselves.

If that statement is not an indictment of the manner in which the administration is handling this process, I don’t know what is. Clearly market participants are discounting the integrity of the Bank Stress Test process, and in turn the results.

Given pressure from certain strong banks, speculation is now rising that the Obama administration will release some version of Bank Stress Test results soon.

Can the markets handle the truth about these Bank Stress Test results? I would turn the question around. Can the administration and government handle the truth?

LD

This entry was posted on Wednesday, April 15th, 2009 at 6:44 AM and is filed under Bank Stress Test, Banking Institutions, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.