Reading the bank stress tests

What the federal banking audit tells us about our economic health, and that of our financial giants

The results of the Federal Reserve's stress tests on 19 banks were "one of Washington's worst-kept secrets," said the Los Angeles Times in an editorial. So it's no surprise to learn that 10 banks need a combined $75 billion in new capital to withstand a severe downturn. Treasury Secretary Tim Geithner, who has $110 billion left to rescue banks if they can't raise private money, calls the results "reassuring," but we have our doubts.

Whether you find the results “reassuring” should depend on your profession, said Paul Krugman in The New York Times. Bankers will do well no matter what—if their banks recover, they “win big,” and the “mildness” of the Obama team’s bank policy means they can go back to shady business as usual; if not, they get another taxpayer bailout. For those same reasons, the rest of us “should be very, very afraid.”

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