On Friday, NPR aired a longish segment (almost 8 minutes) of reporting on bank bailouts via a research note set out by a Deutsche Bank economist:
A single piece of paper may just be one of the most surprising and illuminating documents of the whole banking crisis.
It’s a one-page research note from an economist at Deutsche Bank, and it outlines in the clearest terms the kind of solution many bankers are looking for. The basic message: We should forget trying to get a good deal for taxpayers because even trying will hurt.
“Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line,” the document says.
In other words, the paper says, if the government tries to save taxpayers money, many people will lose their jobs and the whole economy will suffer.
I strongly recommend listening to the whole thing — in this one note you can see exactly why investors keep dumping bank stocks. Not only do they not know what is going on on their balance sheets, but the thing that they all expect the government to do — sweep in with more money — isn’t happening. Yet.
Someone in this piece characterizes this missive from the Deutsche Bank economist as something of a thug’s threat: “Nice global economy you got there; be a shame to lose it….”
The original TARP I thought was largely designed to keep banks and shareholders whole — in the interim, shareholders have taken a bath on bank stocks and I doubt that is over. Several of the big banks are barely standing, small banks are failing at a rate of about 2 per week and the entire system seems to be holding its breath to see what will happen to these banks. I think that these Stress Tests are key though — not because they’ll tell you anything new, but that I think that they’ll provide some cover/rationale for whatever Geithner has decided to move on.
(If you’ve an hour, this week’s episode of This American Life is a simply fantastic overview of the banking situation done with their usual quirky apomb. You can get this as a podcast over at iTunes for free, but only for a week.)