Video: Geithner stress tests a “sham … a Potemkin Village”
posted at 2:48 pm on April 6, 2009 by Ed Morrissey
Tim Geithner promised to conduct “stress tests” on financial institutions to determine whether to sink TARP money into them, or shut them down. A former prosecutor for savings and loans calls Geithner’s claims “a complete sham,” and likens the stress tests to a “Potemkin village” designed to hoodwink taxpayers as their money disappears. William Black gives no quarter in this Yahoo! Finance interview:
The bank stress tests currently underway are “a complete sham,” says William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri – Kansas City. “It’s a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough.
He detailed these and related concerns in a recent interview with Naked Capitalism. But Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis, says the program’s failings go way beyond such technical issues. “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian.”
The former regulator is extremely critical of Geithner, calling him a “failed regulator” now “adding to failed policy” by not allowing “banks that really need desperately to be closed” to fail.
In fact, as Yahoo notes, Geithner refused to acknowledge that some banks might have a need to fail when being interviewed on Face the Nation this weekend. Black believes that Geithner and the Obama administration have invested too much into TARP and bailouts to admit that the strategy has failed. He accuses Geithner in stark terms of constructing the stress tests as a political cover for shoveling good money after bad, and that the losses will wind up being enormous — and completely avoidable.
It appears that the “uniquely qualified” meme has begun to collapse in the media — and not just at Fox News.
Update: If you’re not familiar with the term “Potemkin Village”, Wikipedia has a decent explanation.
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Timmay!
T-t-t-t-t-timmetimmetimme
TIMAY!!!
cannonball on April 6, 2009 at 2:49 PM
The Treasury Secretary, serving at the pleasure of Obama, might attempt to hoodwink the taxpayers?
Shocking.
myrenovations on April 6, 2009 at 2:50 PM
The adults are in charge.
I won.
Yada yada yada.
lorien1973 on April 6, 2009 at 2:51 PM
So does this mean nobody is actually going to fail these “stress tests?”
Joe Caps on April 6, 2009 at 2:51 PM
tax cheat timmaayyy
Drunk Report on April 6, 2009 at 2:51 PM
They’re on a path they can’t escape. Bailout fatigue is going to derail this administration.
ZJPolitical on April 6, 2009 at 2:52 PM
Hmmmm…. just struck me..
Because through Government intervention, some banks are saved while some have failed…
Do stockholders of the failed banks have an Equal Protection arguement?
Especialy as this whole thing was caused by Government anyway?
Discovery could get very interesting in a case like that…. it would do the work the Media SHOULD be doing now… uncovering what is going on…
Romeo13 on April 6, 2009 at 2:54 PM
On the plus side, if the stress tests are phoney, they have a built in excuse not to do more bailouts – which the public doesn’t want anyways. So, hey, fraud in government can work to our advantage for a change!
lorien1973 on April 6, 2009 at 2:57 PM
Possibly. Especially if it’s big bank that wants to give back the TARP money. I think Obama or Timmy used the example of someone on antibiotics for a few days. They think they’re cured, but they’re not.
So while you barely pass the stress test(it’s not a fatal disease), you do need continued monitoring/regulation by the Government. You know, salaries, hiring, etc.
Dr. Dougie Howser Geithner knows best.
Wethal on April 6, 2009 at 2:58 PM
Am I the only one who thinks Geithner is downright dangerous?
Knucklehead on April 6, 2009 at 2:58 PM
If Ogabe keeps pulling this sort of crap and bankrupting the nation, they are going to discover all sorts of new stresses at the hands of an outraged public.
Bishop on April 6, 2009 at 2:59 PM
You guys just don’t understand because you’re all stooopid conservatives all coked up on Glen Beck and can’t see that Obama is just too cool to fail…
/gags on own sarcasm
Wyznowski on April 6, 2009 at 3:00 PM
A fool and someone elses money is a bad combination
workingforpigs on April 6, 2009 at 3:01 PM
Dangerous like a toddler with a loaded gun and lack of parental supervision, yes.
Dangerous like Mao’s 4th wife, no.
But can bring can bring awful consequences.
myrenovations on April 6, 2009 at 3:01 PM
I’m giving you my bold prediction.
Within the next four years, the MSM will begin — ever so subtly — to refer to Obama as a man of both black and white inheritance.
Emphasis will be placed on his mixed racial status.
It is simply unacceptable that the first black president in history be such an unequivocal, historic failure, and that’s exactly what’s shaping up.
jeff_from_mpls on April 6, 2009 at 3:02 PM
If obama can have a CEO fired, can the american people as his board of directors fire him? Do we have to wait 4 years?
workingforpigs on April 6, 2009 at 3:02 PM
The bailouts are just a political payoff.
zmdavid on April 6, 2009 at 3:03 PM
When do we get the investigation of Dodd, Rangel, Franks, Fannie Mae, Freddie Mac?? And ACORN and Obama role in this. It’s not the greedy wall street types as much as it is our corrupt politicians and failed liberal policies!
Christian Conservative on April 6, 2009 at 3:05 PM
I’m with ya, brother/sister.
Oink on April 6, 2009 at 3:06 PM
I think we have discoverd Mr. Teleprompter’s legacy……..
…….. so early in his Administration,
Who knew?
Seven Percent Solution on April 6, 2009 at 3:06 PM
But…but…but…Timmy was gonna be our savior, Obama said so.
GarandFan on April 6, 2009 at 3:07 PM
Dang, Ed. Not even a mention when I had tried to tell you this way back in February.
progressoverpeace on April 6, 2009 at 3:10 PM
Black was interviewed by Moyers on PBS recently. Very good read/view. He trashes Geihtner, Paulson and Obama…
voiceofreason on April 6, 2009 at 3:10 PM
I learned a new word today. So does this mean we have a Potemkin President?
BelchSpeak on April 6, 2009 at 3:11 PM
They won’t fail stress tests, but they’re not allowed to return TARP money and are required to bend their necks to partisan micromanagement by politicians, regulators and Dear Leader.
I want to move to the USA…
obladioblada on April 6, 2009 at 3:13 PM
Why single out Geithner?
Count to 10 on April 6, 2009 at 3:14 PM
wake up america
gatorboy on April 6, 2009 at 3:14 PM
Pretty much.
Count to 10 on April 6, 2009 at 3:15 PM
I saw that, too. Don’t usually watch Moyers, given his leffty bias. but it was amazing to see him give Black time to explain how Paulson/Obama/Geithner/Summers’plans were bad.
Wethal on April 6, 2009 at 3:18 PM
The only way to get through to the drones is to make a statement on American Idol, Dancing with the Stars or if somebody hacked Obahmbos Teleprompter.
portlandon on April 6, 2009 at 3:24 PM
So based on Geithner’s own standards, shouldn’t the federal government shut down already?
Snowed In on April 6, 2009 at 3:25 PM
+10
John_Locke on April 6, 2009 at 3:26 PM
Hilarious!!!!!!!!!!!
UltimateBob on April 6, 2009 at 3:26 PM
It was quite damning. Transcript here.
Denninger also blogged it.
Rae on April 6, 2009 at 3:26 PM
You’re forgetting adding new messages to music videos, having Bret Michaels say something on Rock of Love, or having something in Desperate Housewives…
John_Locke on April 6, 2009 at 3:27 PM
Quick Poll:
Who has seen the Potemkin Village at the Korean DMZ with the big, giant, massive (sometimes a cigar is just a cigar) flag?
29Victor on April 6, 2009 at 3:28 PM
How about a more topical reference.
BohicaTwentyTwo on April 6, 2009 at 3:29 PM
You may be able to put lipstick on a pig, but I’d like to meet the last one or two deluded souls who don’t think the entire bail-out fiasco is a gigantic fustercluck and a deliberate pillaging of the US economy. Maybe notaclue is one of them, but that’s likely about it.
If you think this is good, you’re gonna just f’n LOVE state-run health care, state-run energy markets, and state-run auto manufacturers!
mr.blacksheep on April 6, 2009 at 3:29 PM
It’s sure worth a try…. the “adults” in charge consistently disregard their constitutional limits. If they don’t care about the rules, then they shouldn’t have a problem with the people forcing them out of office before they’ve served out their terms.
All we have to do now is find some Repubs with a spine to get the ball rolling.
UltimateBob on April 6, 2009 at 3:30 PM
http://en.wikipedia.org/wiki/Gijeong-dong
BohicaTwentyTwo on April 6, 2009 at 3:30 PM
The Allies in WWII played that card against the Nazi;s…thinking that we had a build up on fake landing site.
hawkman on April 6, 2009 at 3:32 PM
That’s the place. Been there, done that. All the lights in town come on at the same time, no people around though.
Funny stuff.
29Victor on April 6, 2009 at 3:33 PM
You are far from alone… he is dangerous as dangerous gets.
cannonball on April 6, 2009 at 3:33 PM
Of course, it’s possible for a stress test to be a sham, but it seems it doesn’t have to be a sham. If we haven’t heard of “stress testing” before now, it may be because the techniques have only emerged since the mid-1990s. I think the main company involved in measuring risk and consulting on the conduct of stress tests is the Riskmetrics Group. Their websites are
http://www.riskmetrics.com/
http://www.riskgrades.com/
If we haven’t heard a clear explanation of stress testing in the media, it may be because even the foundational techniques are very difficult to understand. The technique of risk estimation preferred by the Riskmetrics Group is called a “long-memory microscopic autoregressive conditional heteroscedastic model.” It’s described in a 2006 paper by Gilles Zumbach, available on RiskMetrics Group’s website, on their Technical Documents page. Understand, nobody made up risk measurement and stress testing in order to fool us, here, today, about this bank crisis. One can of course lie about stress-testing, one can do it wrong, one can mis-interpret the results, and one can make the wrong choices based on the results. However, the techniques themselves appear to be quite real, and potentially of great value when used properly.
Kralizec on April 6, 2009 at 3:40 PM
Tell me after the first “stress test” and the bank fails will they hang a banner across the front of the building….”Mission Accomplished”…
right2bright on April 6, 2009 at 3:43 PM
Well if they say it is on their website, then it is…
Meanwhile William Black, a former senior bank regulator and S&L prosecutor, and currently an Associate Professor of Economics and Law at the University of Missouri – Kansas City, says it isn’t. He isn’t making any money on this stress test.
Who would you depend on initially. A website designed to sell you on the worth of the product, or a person with Black’s background?
I am sure RiskMetrics has all the answers, then some, and I am sure without going to their website that they are extremely professional, extremely proficient, extremely marketed, and extremely profitable.
Do you or I have the background to discern if they are a sham or a wow?
right2bright on April 6, 2009 at 3:48 PM
Because it’s relevant when talking about Geithner, here’s the Sidney Morning Herald link in which Australia lays the blame for Indonesia’s collapse, and the resulting fear of IMF involvement in East Asia, at Geithner’s feet.
Name me a job at which Timmy has ever succeeded. IMF – destroyed a prosperous economy. NY Fed – oversaw Wall Street’s creation of hazardous financial tools, and engineered the “bailout” that sent millions of good money after bad. And now he’s in Washington.
hawksruleva on April 6, 2009 at 3:57 PM
Unfortunately impeachment is a no-win situation.
jdkchem on April 6, 2009 at 3:57 PM
Duh, they know the banks went insolvent (bush depression) and the trillions are funneled to make them solvent ( bush recession).
Yeah, it stinks to high heaven for the workers having to pay for their gambling greedy losses but cons blame the dems and give these banks a free pass.
getalife on April 6, 2009 at 3:59 PM
No, you knucklehead.
hillbillyjim on April 6, 2009 at 4:01 PM
ugghh. This place is beginning to reek of Troll.
Anyone else smell it?
29Victor on April 6, 2009 at 4:01 PM
Actually, of course, their saying something on their web site does not make it true. Nor was it reasonable for you to assume that I’m merely taking their representations at face value. I’m studying the 2006 version of RiskMetrics Group’s market-risk measurement technique myself and have applied the first part of it (calculation of the time series of sums of the power-law weighted historical volatilities) to the time series of the S&P 500 index for 1970 – 2009. Had I known in 1999 what I’ve learned from RiskMetrics in the last few days, I think I’d be much better off financially today.
None of this solves the problem as to whether Geithner’s stress tests are real or sham. However, one ought not let suspicion of Obama and Geithner cause one to dismiss risk measurement and stress testing altogether. The value of sincere, intelligent attempts at risk measurement and stress testing is what I’m defending here.
Kralizec on April 6, 2009 at 4:12 PM
Knucklehead: You are definitely not alone.
Dhuka on April 6, 2009 at 4:17 PM
If “Pinocchio” Geithner doesn’t stop lying, GM will have to construct a new truck to carry his nose around. A ‘tandem wheel’ no doubt.
JoeySlippers on April 6, 2009 at 4:44 PM
Waiting for Geithner
This is the best of all possible worlds.
DrW on April 6, 2009 at 4:46 PM
How much longer do we have to wait before the conspiracy kicks in…
W let Wall Street crash because Rove saw Obama was going to win and it was the only way to stop him from…
…fill in the rest.
It’s a Mos Def world.
budfox on April 6, 2009 at 5:16 PM
Black also gave an excellent interview to Bill Moyers (no kidding) and Glenn Greenwald. When you lose Moyers/Gleen, you’ve lost liberal America.
Moyers Interview
Found it all by this post at Patterico
PattyJ on April 6, 2009 at 5:28 PM
What else frosts me is the appalling bonuses being awarded to those serving on Feddie Mac and Fannie Mae.
Additionally, I was thumbing through last week’s local newspaper, which reprinted an article by the Chicago Tribune’s Bob Secter and Andrew Zajac about Rahm Emanuel’s extraordinary compensation while serving on the Freddie Mac board, a board which was fraught with scandal. “The Obama administration has rejected the Trib’s request under the FOIA to review Freddie Mac board minutes and correspondence during Emanuel’s time as director.”
“By the time Emanuel joined Freddie Mac, the company had begun to loosen lending standards and buy riskier subprime loans. It was a practice that later blew up and contributed to the foreclosure crisis.”
At another point in the article: “On Emanuel’s watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsized profits the government-chartered firm was then reaping from risky investments.”
This whole racket of deceiving the taxpayers deserves a RICO investigation, as far as I am concerned.
Geithner will not allow banks (which did not want the money) to repay TARP. He is picking winners and losers unilaterally, answerable to no one. Those winners appear to have ties to too many in this administration.
onlineanalyst on April 6, 2009 at 5:35 PM
For everyone hoping beyond hope that by 2012, the nation will see The One as an abject failure, and we take the White House back, three points: 1) FDR was a huge hero to much of the country, despite his unConstitutional activities and making the misery last five times as long as it should have; 2) The media is invested in Him; and 3) The ACORN fraud is just beginning to ramp up. Throw in the Census being run by Rahm Emmanuel and ACORN, we may not be able to get things back. Just something sunny to consider.
bikermailman on April 6, 2009 at 5:40 PM
Even what is probably normally a left leaning site is waking up and smelling what is clearly not roses –
Obama Administration Careening Towards Disaster (And Taking the Country With It)
MB4 on April 6, 2009 at 6:49 PM
How long before stepping onto a plane or just going to visit your relatives in another state you hear… “Your papers are not in order”.
“Vee haff vays to make you tokk!!”
44Magnum on April 6, 2009 at 7:03 PM
Blame Bush for phoney bank stress tests. Check.
Not making sense in the context of the thread. Check.
Business as usual for getaclue. Check.
lorien1973 on April 6, 2009 at 7:15 PM
Geithner is a ploy … Barry will throw him under the bus at some point blaming the whole thing on him. Prolly right before the election as he “cleans house for the PEOPLE!”
What a maroon.
ex-Democrat on April 6, 2009 at 9:16 PM
A fool and someone elses money is a bad combination
workingforpigs
A fool with power and someone else’s money is even worse.
SKYFOX on April 7, 2009 at 8:19 AM