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The Joke’s on Us

What a joke the Obama administration is becoming, as it keeps trying to prop up failing industry after failing industry.

First we had the president becoming First Car Salesman, offering federal guarantees for GM and Chrysler car warrantees so that potential car customers wouldn’t turn away from those two companies’ showrooms fearing that the manufacturers would go bust and leave them holding the bag. Then he started touting the cars themselves, saying they were “great products” and that people should go out and buy them.

Now we have the White House and Treasury Department assuring us that all 19 of the country’s biggest banks are going to survive the credit crisis and the economic slump, and that they are all basically sound. Okay, so some of them, like Bank of America which has to come up with $35 billion in new capital, need cash infusions or need their books juggled—a total of $100 billion for all 19 banks–but as Fed Chairman and Chief of Rehabilitation and Promotion (that’s CRAP) for the banking industry Ben Bernanke, is assuring us, “All the banks in the stress tests are solvent.”

Really.  Forget about all those troubled assets folks. They are solvent. Honest.

These stress tests are really a joke, though.  Consider that the government (and in the end each individual American taxpayer) is now a huge stakeholder in every bank that received bailout funds. If one of these stress tests were to honestly report that one of these “too big to fail” banks was insolvent, or that it would become insolvent if the recession got worse, that would cause a collapse in that bank or, at a minimum, a plunge in its share value, with the government being the loser.

Do we really think CRAP Bernanke and Treasury Secretary Tim Geithner are going to do that?

The only way to do a real stress test would be the way the Fed and the Federal Deposit Insurance Corp. and other bank regulators used to do them: in complete secrecy. Banks, after all, which even under the best of circumstances lend out 10 times their assets, are critically dependent upon the confidence of their depositors. Any sign that a bank is in trouble and the depositors and even business customers like those who maintain credit lines at an institution, start to flee.

So what these stress tests are really is not honest evaluations of the financial conditions of these banks, but rather, public relations exercises designed to boost the public’s confidence in them.  Even then, though, the tests were anything but rigorous.  One test was based on an assumption that the nation’s unemployment would reach 8.8 percent sometime next year, with housing prices falling another 14 percent in 2009. But official unemployment is already at 8.9 percent and is still rising, and housing prices are falling more than that level.  The so called “worst case” stress test assumed unemployment rising to 10.3 percent in 2010 and housing prices losing another 22 percent in 2009, but in fact, things could well be much worse than that, both for unemployment and houseing prices, by 2010.

So really, the fact that these easy “stress” tests resulted in a conclusion that the 19 banks in question need to raise a total of $100 billion in new capital in six months should be a cause for alarm, not confidence.

Add to that the fact that the government’s and the banking industry’s proposed solution to the capital shortfall, since there are likely to be few investors who will want to shovel new money into these zombie banks, is to convert the money which the government has already loaned to the banks in return for preferred shares in those institutions into common shares, which counts as capital.  If you think about it, while this shifting around of money on the banks books may yield better numbers, it doesn’t really provide the banks with one dollar more of cash to lend, or to cover bad debts. What it does do is take government money which could conceivably be recovered in the event of a bank failure, and convert it into paper that could easily end up having a value of 0 in the event of a bank failure.  If a bank were to go down the tubes, its common shares would have no value at all, and then that’s what our TARP funds would also be worth: zero.

No wonder Obama and his term of financial “wizards” are touting the alleged strength of these banks!

So it has come to this. After getting rid of an inarticulate and know-nothing president and a manipulative, secretive and anti-democratic vice president, we now have a White House filled with comics and hucksters shilling shamelessly for the both the automotive and the banking industry, both of which are candidates for roles in a “Night of the Living Dead” remake.

This should not give us confidence  about other government claims, like when President Obama and his State Department and Pentagon “wizards” stand up and tell us that they have a plan for the mess in Iraq or the other mess in Afghanistan, or that they even know what they are doing in and to Pakistan.

Congress has been a joke for years. Now the White House is becoming a laughing stock.  It is, I’m afraid, all starting to look like one big joke, and it’s on us.

DAVE LINDORFF  is a Philadelphia-based journalist and columnist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now available in paperback). He can be reached at dlindorff@mindspring.com

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Dave Lindorff is a founding member of ThisCantBeHappening!, an online newspaper collective, and is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

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