Dulling the Impact of the Stress Tests

an·ti·cli·max:

Something trivial or commonplace that concludes a series of significant events

This is not a discussion of whether or not the upcoming 19-bank stress test results are important or whether or not they should have been conducted in the first place.  Instead, the subject I’ll pontificate on here is the masterful dissemination of the potentially disruptive information and how well the Obama team handled this particular tempest in a teacup.

The representatives of the US Government (aka the World’s Largest Hedge Fund) were, even as of a month ago, unsure of who was responsible for releasing the results of the stress tests to the public.  The CEOs of the subject banks got their assessments by driving downtown to pick them up.

But which agency or government body was to alert the media when the time came?  And what would the impact be on the shares and debt of banks that fared poorly under the calculations?  This was a conundrum that was first chronicled on Bloomberg:

From Bloomberg (4/19):

With a May 4 deadline approaching, there is no set plan for how much information to release, how to categorize the results or who should make the announcement and the fact that none of the various officials at the Fed, FDIC or Treasury would step up and take the reins was even more pathetic.

The other big problem was that the mere existence of these stress tests even existing was a damned if you do, damned if you don’t situation for Tim Geithner & Co.  As I quoted in an earlier post:

If all the banks pass, the tests’ credibility will be questioned, and if some banks get failing grades and are forced to accept more government capital and oversight, they may be punished by investors and customers.

But a funny thing happened on the way to the catch-22…Obama’s guys outsmarted everyone with a slow and gradual leak of enough stress test information to literally render the actual data’s impact meaningless upon release.

First, they dribbled out the parameters of how the tests were conducted and under what circumstances.  Then they leaked the fact that they were deliberately harsher on regional banks.  Next, they waged a discussion in the media about the fact that Citigroup and Bank of America were looking to appeal the results that they’d been shown about their own banks.  Yesterday, two separate reports came out about how Citigroup may need another $10 billion in new money and B of A may need tens of billions to put on a pretty face before the results would come later this week.

This morning yet another leak: “WSJ says 10 of the 19 need to raise new capital.”…the leaks are comin’ through like from a damaged Dutch Dike (my lord I hope I used that term correctly).

At this point, there is enough information out there that no one is going to go haywire over the actual results themselves.  Geithner’s problem has been solved by a nuanced and finnessed campaign to blunt the report’s impact so as to avoid a major disruption in the financial markets.

Nuance is something the Bush administration didn’t exactly do well, or try to do well.  This new approach from the Obama administration is going to take some getting used to.

Bravo on the handling of the stress tests.  I was advocating for a rip-off-the-band-aid approach at dissemination last month, but now I see that there was another, smoother way all along.

Read Also: Stress Tests – Capitalism Without Competition

Tags: , , , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. immediate edge reviews commented on Oct 01

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  2. Exotic Animals for Sale commented on Oct 13

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  3. DevOps Consulting Companies commented on Dec 01

    … [Trackback]

    […] Find More Info here on that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  4. Functional testing services commented on Dec 09

    … [Trackback]

    […] Find More here to that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  5. 메이저놀이터 commented on Dec 24

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  6. faux iwc portuguese price commented on Dec 30

    … [Trackback]

    […] There you can find 29320 additional Information on that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]

  7. scotiabank online digital banking commented on Jan 10

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2009/05/05/dulling-the-impact-of-the-stress-tests/ […]