Dr. Geithner Readies the Electrodes
Treasury Secretary Tim Geithner was under a great deal of stress.
As he announced the Obama administration's financial bailout plan yesterday, he pivoted mechanically so that he could read each word from teleprompter screens, creating the unsettling impression that he was addressing his remarks to the walls on his left and his right rather than the audience in front of him. When he got to the primary element of his plan, his voice cracked on the word "first."
Why so much stress? Well, for weeks Congress, the markets and the country have been waiting to hear the details of the new administration's plan. But Geithner had few details to offer yesterday. Instead, at the heart of his plan, he proposed a stress test.
"First, we're going to require banking institutions to go through a carefully designed comprehensive stress test," he announced. "This borrows the medical term."
The medical clarification was probably unnecessary. The real question was why he would propose a stress test when other medical procedures would seem to be in order for the banking system -- an enema at the very least, if not a heart-lung transplant.
The stress-test prescription failed to cure the market's anxiety; the Dow fell 382 points, and investors blamed Geithner's lack of specifics. On the positive side, he added a new buzzword to the lexicon of the capital's economic debate. After weeks of talking about "bang for the buck" and "shovel-ready" projects, Washington can now talk about stress tests.
The administration, lawmakers and reporters were off and running with the new term. "The secretary will talk about, in laymen's terms, giving banks a stress test," White House press secretary Robert Gibbs told reporters aboard Air Force One.
"This is a financial stress test, to use the medical analogy," Geithner told the Senate banking committee in the afternoon, as promised.
"What will you do if your stress tests of major banks revealed some are insolvent?" asked Sen. Jim Bunning (R-Ky.).
"Is there a deadline to pass this stress test?" Maura Reynolds of the Los Angeles Times asked Treasury officials at a briefing.
In truth, it would be medically suspicious if Geithner and his administration colleagues weren't stressed out in this economic environment. Inherent in the stress-test proposal is an admission that the feds still don't have a handle on how weak the banking system is, and a fear that things could deteriorate further.
"From the stress test, we can deduce that you don't know if the largest banks in this country are insolvent," another questioner pointed out at the briefing.