A Stress Test Like a Bad Porn Flick

Naked facts but not much action: the bank examiners have finished and so has the B-movie farce the American government could have easily spared a public that only got short-changed.

At first glance, Silvio Berlusconi and Timothy Geithner don’t seem to have much in common. A closer look, however, reveals surprising parallels. Both Italy’s Prime Minister and America’s Treasury Secretary are undergoing great stress – the former with his wife, the latter with his banks – and both seem to enjoy exposing their inner turmoil to the media.

While it might seem obscene to some that Berlusconi publicly denies his wife’s accusations that he had sex with a minor on an Italian television show, Geithner doesn’t come off much better when, one day before releasing the results of the banking stress test, he praises the strength of America’s banking system in the New York Times and on public television. His praise was overflowing with virile terms like “dramatic action,” “exceptional assessment,” “hundreds of supervisors,” “rigorously reviewing,” “strict,” and “lifting the fog of uncertainty.” Translation was unnecessary because the message to the television audience and newspaper readers was self-explanatory: if Berlusconi is the world’s greatest dad, then Geithner’s 19 banks not only have the tallest skyscrapers, they’ll soon be comfortable under the thickest capital blankets.

Sexy banks in see-through pants

The farce reached its climax around 5 p.m. local time in Washington when the Federal Reserve finally released the stress test results to the public. Like a bad porn flick, where the action is either disgusting, predictable or sometimes not apparent at all, not many people seemed particularly interested in the details. That’s because all 19 banks had already dropped their trousers to the world before the official announcement was released.

The naked details were later gradually made public via the Wall Street Journal, CNBC, ABC, Bloomberg, Reuters and other sources. $10 billion here, $35 billion there, another few billion over there – each bit of information a tiny test balloon of the public’s reaction. Shock? Disgust? Change channels? The totals count. And in the end, Geithner was successful: before they even ran the credits, his little production “Sexy Banks in See-thru Pants” had unleashed a wave of euphoria. On Thursday, the Stoxx 600 went right through the ceiling before prices began to weaken again.

What’s left is a stale feeling. Alone in front of the TV in his recliner, the viewer gets the feeling he’s just wasted as much time watching Geithner’s little banking flick as he would have watching Berlusconi’s denials. One controls the situation by locking his heels military-style and only succeeds in redirecting attention to his marital problems, the other tries to tart up a deeply damaged banking system with questionable methods.

What’s missing in this whole banking crisis is a government that finally quits putting on smug little B-movies with no action. That means: nationalize failing banks, shrink them and – if nobody’s interested in buying them – shut them down. A variation on that theme would be to divide insolvent banks into good and bad halves. That way, taxpayers wouldn’t be the only ones getting shaved; stockholders and bondholders would share in the pain as well. Another advantage to that is it would divide the toxic paper from the good. Instead of trying to emulate the motor-mouthed Berlusconi, Geithner would be better advised to heed Theodore Roosevelt’s advice to speak softly and carry a big stick. That’s the exact opposite of what’s going on now.