*wades back into politics*

May 8, 2009 at 10:52 am (Economy, Politics) (, , , , , , , , )

Okay, I’ve kind of been ignoring the news just lately (which is part of the reason I haven’t been posting).  It’s very hard to read news about financial ruin when your own personal financial situation isn’t especially secure.

However, I think I can stomach it for now, and it’s good to stay informed when possible.

So, how about that stress test?  I will freely admit that I didn’t read the second half of the article, because at some point, financial news makes my eyes cross (and that’s even when the financial news isn’t bad or worrisome).  But I did read Paul Krugman today.  He is, as usual, being a little bit doom-and-gloom, but at least he’s easier to read.

What I find interesting on this topic is that the stress test itself, as Krugman says, tells us very little (and certainly not much that’s actually reassuring).  Where I don’t agree with Krugman is why President Obama is approaching the situation in just this way.  Krugman seems to think that any incentive for changing the financial landscape is fading, and that the Obama Administration is mostly just deciding not to be dramatic here.

But seriously, Obama is Machiavellian.  He is incredibly smart, and able to use that to manipulate situations to fit his desires and goals.  I actually think there’s a very good possibility that he’s going to let all of the banks have a fair shot at getting out of this pickle without major changes precisely because he thinks they won’t be able to do it.  They’ve got less than a month to tell the government how they’re going to raise the extra capital needed to pass the stress test.  So what happens if some or all of them can’t figure out how to do it?  Obama can swoop in and say the government needs to make sweeping changes, because we gave the banks a chance and they couldn’t come up with a solution.

If people complain at that point, Obama can argue that he gave the banks a very fair shot – the estimate of their shortfall in capital was extremely, generously in their favor.  So if they couldn’t even come up with that, then how could they possibly weather the more serious shortfall that many people think is likely?

I hope that’s what he’s doing, anyway.  Otherwise, Paul Krugman’s gloomy outlook is probably right.  I’m just going to hold on to my hope that Obama is smart enough to use momentum he gets for free…but that he’s also charismatic enough to create his own momentum when he needs it.

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