By Dana Milbank
Wednesday, February 11, 2009
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.
The official who answered -- the Treasury Department made him available on the condition that his name not be used -- replied that "this stress test is . . . designed to be more forward-looking and to make sure we're taking into account a quite broad range of economic scenarios."
"What could be worse than the current situation?" the reporter asked.
The official smiled. "I'm not going to answer that," he said.
The rollout seemed to cause a high stress level throughout the Treasury Department. Geithner's announcement started late, and audience members were still straggling in as he spoke because of problems at the Secret Service guard booth outside. The guards, using a printout that was five hours old, didn't have the names of many of those who were to be admitted to the event, so dozens of federal officials and reporters cooled their heels outside while the guards worked the phones to get updated information.
When Geithner emerged, it was with an unusual choice of an escort: the chairman of the Senate banking committee, Chris Dodd (D-Countrywide Financial). The Treasury secretary, when his turn came, stuck to the teleprompters so closely that the delivery suffered. His final line -- "Thank you for coming" -- was delivered as though it were not the end of a sentence and Geithner intended to say more; instead, he gave a nod to indicate he was finished.
NBC's Brian Williams was there to interview him when he was done. "What do you have to say for this plan you just unveiled?" he asked Geithner. "The market is down 285 and change, not a ringing endorsement."
Other journalists went upstairs to be briefed by the anonymous official, who began his discussion of liquidity problems by plopping his bottle of Dasani water on the lectern. "This program is designed to restart the flow of credit," he said after taking a swig. Mortgage securities "are illiquid," he said, taking another sip.
The thirsty official was vague on many of the items in the plan ("It really does depend on the design features. . . . We are looking at a variety of different structures."). But he had no such reticence when it came to discussing the stress tests.
A reporter asked about how the government would inject capital into banks. "We'll have a better sense after the supervisors complete their stress tests," he answered.
And what if a bank fails its stress test? "I don't think there's a pass/fail on the stress test," another official said while the first sipped his Dasani.
Geithner, meanwhile, was preparing to undergo a stress test of his own, before the banking committee. "Is there a concrete plan here?" fumed Sen. Richard Shelby (Ala.), the panel's ranking Republican. "Aggravating economic problems by contributing to marketplace uncertainty about what steps the government will take -- is this what this is?"
As the Treasury secretary defended his plan, the ticker tape on Wall Street resembled the electrocardiogram of a very sick patient.