Sunday, April 19, 2009

Bill Black Speaks Out on the Stress Tests

Bill Black, a former senior bank regulator and S&L prosecutor, is one of the few people with both the guts and knowledge to speak the truth about how the banking crisis is being mishandled, and principally by the people who caused it in the first place. When all we get is spin from Larry Summers and Tim Geithner, it's reassuring that at least one strong, reasoned voice is willing to speak the truth.

From the article that accompanied the video:

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. (On Saturday,
Geithner said on Face the Nation, if banks need "exceptional assistance" in the
future "then we'll make sure that assistance comes with conditions," including
potentially changing management and the board, but did not say they'd be shut

Black says the stress test must also be viewed in the context of
Geithner’s toxic debt plan, which he calls “an enormous taxpayer subsidy for
people who caused the problem.” The fact bank stocks have been rising since
Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the
subsidy of all history."