The New York Timesleads with word that the White House has decided to reveal at least some results from the so-called stress tests that are currently being completed on the nation’s 19 biggest banks. The Wall Street Journalleads its world-wide newsbox with North Korea kicking out U.N. nuclear inspectors and announcing it would never again participate in disarmament talks. Responding to the U.N. Security Council’s criticism of its missile launch, which it described as an “unbearable insult,” North Korea also said it would restart its nuclear program. USA Todayleads with a look at how a program to secure the nation’s ports is delayed for at least two more years because the Department of Homeland Security still lacks fingerprint readers that can be used with the high-tech ID cards those who work in secure port areas were forced to purchase.
The Los Angeles Timesand Washington Postlead with President Obama’s speech at Georgetown University, but the papers use the address as a jumping-off point to different issues. In what the LAT dubs “an economic State of the Union address,” Obama made it clear he is ready to fight Congress in order to achieve the changes in education, energy, health care, and financial regulation that he had previously outlined. The WP notes that while Obama and Fed Chairman Ben Bernanke tried to sound cautiously optimistic about the economy, “the economy wasn’t cooperating.” Retail sales fell 1.1 percent in March from February, which was accompanied by a drop in wholesale prices, signifying that the downturn is nowhere near over. The Standard & Poor’s 500-stock index fell 2 percent.
The NYT notes that the discussion over what to release from the stress tests “underscores the delicate balancing act by the government” as it tries to build confidence in the financial system. Discussions are still underway about what exactly will be revealed, but officials seem to recognize that leaks would be inevitable, and failing to disclose how the banks could weather a severe economic downturn might create even more uncertainty. “The purpose of this program is to prevent panics, not cause them,” said one senior official. “And it’s becoming clearer that we and the banks are going to have to explain clearly where each bank falls in the spectrum.” Banks that are in better shape, of course, are eager to announce it from the hilltop, despite the fact that the government has asked them to remain quiet. What does this all add up to? “We are going to have some separation between the haves and have nots,” one banking analyst said.
In a smart piece that for some reason isn’t on the front page, the WSJ declares that the result of the stress tests combined with the banks’ first-quarter results “could lay the groundwork for a new phase in the financial crisis.” Up until now, the government has pretty much treated the banks equally, but in the next few weeks, some of the stronger banks could find themselves free of government interference while the others would still be dependent on taxpayer funds, effectively transforming “how investors and the government view the financial sector.” Many are worried that by listing which banks are in the worst shape, the government would essentially be propping up some banks while diminishing the stature of others. That could, of course, turn into a vicious cycle that ultimately could make any further bailouts much more expensive.
The NYT speculates that the announcement by Goldman Sachs that it wants to repay the $10 billion it got from the government’s Troubled Asset Relief Program may have pushed the government to release some of the results from the stress test. In fact, Goldman is creating lots of (additional) headaches, not only for the government but also for other banks that are now under increased pressure to follow its lead. Although it might be tempting for taxpayers to cheer the move, as usual, things aren’t quite so simple. “The downside of it is that you are bleeding capital out of the banking system at a time when the banks would be better off with more, rather than less,” notes one banking analyst. The government has made it clear that it will accept the repayment of funds only from banks deemed healthy enough to operate without the assistance. And it is still trying to determine whether the banks that return the TARP money would still be able to enjoy other government benefits that have been extended to banks over the last few months.
In a piece inside, the NYT details how banks, including Goldman Sachs, have been benefiting from “an indirect subsidy” in the form of a federal government guarantee on their debts. Economists say the value of this assistance is “incalculable” because it allowed banks to continue operating at a time when the credit markets were completely frozen. In a must-read op-ed piece (well, must-read for anyone who’s interested in the ins and outs of Goldman Sachs), William Cohan lays out a convincing case for why Goldman shouldn’t be so cavalier about not needing government funds when it has benefitted every step of the way from the government’s actions. Although Goldman Sachs was eager to announce it made a first-quarter profit of $1.8 billion, it failed to mention that because of a change in its fiscal year, it didn’t have to include December into its numbers, a month when it lost $1 billion.
While Obama tried to sound an optimistic note on the economy yesterday, he didn’t predict blue skies. “By no means are we out of the woods just yet,” Obama said as he acknowledged that “there will be more job loss, more foreclosures and more pain.” But ultimately, the overall optimistic notes “reflect a new phase of the government response to the financial crisis and recession,” notes the Post. Now that the government has instituted several programs to prop up the economy, the government wants Americans to feel optimistic enough to open up their wallets.
The LAT points out that Obama may be caught in an unenviable Catch-22. As the economy improves, lawmakers are likely to feel less pressure to quickly act on Obama’s broad agenda. Interest groups are gearing up to fight the administration’s efforts, and lawmakers now appear to be more open to listening. So now Obama is making it clear that although things may be looking up, the country’s long-term recovery is dependent on instituting the broad changes that he had previously outlined in his budget. Ultimately, Obama now has to try “to keep some fear alive,” as the LAT puts it.
The WP’s editorial board writes that while Obama’s speech “was, on many fronts, very good,” Obama “overstates his case in one crucial area and loses all candor and courage in another.” Although overhauling the country’s education, energy, and health care are all laudable goals, “these pursuits have little to do with the economic crisis.” Meanwhile, Obama fully recognizes that entitlement programs are too expensive but doesn’t outline how he would change them or where he would come up with significant savings in order to pay for health care reform.
So far, though, it seems the people are still broadly supportive of Obama’s actions. USAT fronts the results of a new poll that shows most Americans are glad government has stepped in to deal with the current economic mess. Still, a vast majority of Americans also want the government to take a step back once the economy recovers.
In the LAT’s op-ed page, Marc Cooper struggles to understand what on earth all the people who will throw “an anti-Obama Taxpayer Tea Party” are smoking. Cooper writes that he can “recall only a few outbreaks of such collective insanity as these tea parties in recent years. … [A]re common folks actually going to dump Earl Grey into Santa Monica Bay because they are outraged, simply infuriated, by the marginal tax rate rising 3% for millionaires?” They’ll also supposedly protest the billions on bailouts but conveniently forget to mention former President Bush was the one who started them. “The Tea Party movement, more than anything else, is a rather garish display of a Republican right that seems to have lost not only the national elections but also any semblance of political bearings.”
In the WP’s op-ed page, Harold Meyerson takes a look at a poll that found that among the under-30 set, 37 percent of Americans prefer capitalism, while 33 prefer socialism, and 30 percent are undecided. Meyerson says these figures are nothing short of astounding and reveal that, particularly among the young, there is no longer a connection between socialism and anti-Americanism. It would be naive to think that all those who say they prefer socialism know what that means, but Meyerson says that the “demagogic right” shares at least part of the blame (or credit, depending how you look at it) for these changing attitudes. The only people who talk about socialism today are the Rush Limbaughs and Sean Hanittys of the country, who can’t stop spouting off about how a president with a huge approval rating is taking the country down that path. And, ironically enough, young people seem to be answering their calls of doom by asking where they can sign up. “Rush and his boys are doing what Gene Debs and his comrades never really could,” writes Meyerson. “In tandem with Wall Street, they are building socialism in America.”