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.