Today's Papers

Stress Test Results Not That Stressful

The Washington Postleads with, while the Wall Street Journalbanners, more leaked results from the so-called stress tests on the country’s 19 largest financial institutions. When the results are officially unveiled today at 5 p.m., it will mark the first time that the government explicitly divides the nation’s banks into those that are stronger and those that are weaker. The WSJ has a bit more detail on the numbers and states that at least seven institutions will be required to increase their capital levels by $65 billion. The New York Timesleads with claims by Afghan officials and villagers that American airstrikes earlier this week may have killed more than 100 civilians in western Afghanistan. The claims overshadowed President Obama’s first meeting with the presidents of Afghanistan and Pakistan, and also could end up increasing Afghan opposition to U.S. forces just as the White House is getting ready to deploy more than 20,000 additional American troops into the country.

USA Todayleads with word that 26 police agencies in 16 states can’t receive any of the federal stimulus money to boost their forces because they have previously misused government aid. All of the police agencies had previously agreed to the bans on new grants instead of paying back the money to the government. The Los Angeles Timesleads with the wildfire that overwhelmed Santa Barbara last night after winds stoked a brush fire. The out-of-control blaze has managed to burn through 500 acres and destroyed at least 20 homes.

The WP accentuates the good news from the stress test results, declaring that, as many have been suggesting, the results are “more positive than many investors had expected” and emphasizes that while the tests concluded the banks “have enough capital in reserve,” they “may need to strengthen the ability of those holdings to absorb losses.” The NYT is somewhat more direct, noting in its lead sentence that “some of the nation’s largest banks still need more money” despite the billions spent on bailouts. The WSJ says that at least six (the NYT lists seven) of the financial institutions will be told they don’t need to raise more money while at least seven will be told they must increase capital levels. Leading the pack is Bank of America, which will need to raise $34 billion. Also on the list are Wells Fargo ($13 billion to $15 billion), GMAC ($11.5 billion), Citigroup ($5 billion), and Morgan Stanley ($1.5 billion).

Although their numbers may be huge, the big household names may not be the ones that have the most to worry about from the stress tests. The WP notes that auto-financing giant GMAC may be one of the few companies that actually will need more taxpayer cash because it has only $5 billion that it can turn into common equity and, not surprisingly, hasn’t had much luck attracting private investors lately. The WSJ details that the problem may also be more pronounced in the smaller, regional banks that won’t be able to come up with capital as easily. Regions Financial Corp., for example, doesn’t even have any preferred shares it could convert into common stock. Indeed, the LAT declares that the results of the tests “could increase pressures on some large regional banks to merge with others.”

Despite the continuing concerns—critics still insist the government projections were too rosy—investors reacted positively to the early leaked results. Shares of banks that will need to raise more capital soared yesterday, and the Dow Jones industrial average rose 1.2 percent. Government officials continue to believe that most banks will be able to raise the necessary capital without having to turn to the government for help. And while it has been said over and over again that those that can’t raise money on their own could get the capital by converting the government’s preferred shares into common stock, the WSJ makes clear there’s also another option available. In what’s known as “mandatory convertible preferred” shares, the banks would sell preferred shares to the Treasury that would only convert into common equity if the bank posts losses in the future. This would help the government avoid controlling the banks, at least for a little while.

In its own front-page piece about the stress tests, the NYT notes that while the government may be simply moving “public money from one pot to another,” it still represents a “riskier deal for taxpayers.”

In an op-ed piece in the NYT, Treasury Secretary Timothy Geithner writes that the stress test results mark “an important step forward in President Obama’s program to help repair the financial system, restore the flow of credit and put our nation on the path to economic recovery.” Banks have already taken positive steps in response to the stress test, but “[o]ur work is far from over.” Credit is still too scarce and expensive, while the recession and financial crisis continue, but, at the very least, the stress tests “should advance the process of repairing our financial system and provide a better foundation for recovery.”

Afghan officials say as many as 130 civilians were killed by Monday’s airstrikes in western Afghanistan. If that number is close to accurate, it “will almost certainly be the worst in terms of civilian deaths since the American intervention began in 2001,” notes the NYT. The paper gets in touch with a few villagers, who describe a horrific scene full of dead bodies and loose limbs that was the result of a seemingly endless aerial campaign. “It would scare a man if he saw it in a dream,” one said. A joint U.S.-Afghan team will investigate the casualty claims, but military officials cautioned against jumping to conclusions. The NYT hears word that investigators are looking into whether the Taliban may have used grenades to kill civilians and then claim they were victims of airstrikes. One military official even says that an examination of the site and some victims suggests that much of the damage appears to have been caused by grenadelike weapons rather than the larger bombs that would be dropped by a plane.

The WP fronts a look at the results of the White House’s much-touted efforts to examine the federal budget “line by line” to find savings. Today, the administration will say it wants to cut back on 121 programs to save a grand total of $17 billion. And, yes, that is a tiny fraction—0.5 percent to be exact—of the $3.4 trillion budget. Even assuming he manages to get approval for all the cuts, which is highly unlikely, Obama’s goal is about half of what his predecessor said he wanted to cut back on last year when he targeted 151 programs to save $34 billion. Administration officials insist the number shouldn’t be looked at as the last word on savings and is just the beginning of a broader effort.

The NYT, LAT, and WP front dispatches out of Pakistan, where thousands of people have fled the Swat Valley and many have nowhere to go. “This is a massive, massive displacement,” a Red Cross official tells the LAT. “This is a serious humanitarian crisis developing.” Officials say they will soon open up several refugee camps, but so far those who are rushing to escape the violence have to largely fend for themselves.

Making fun of Sen. Arlen Specter’s predicament after he switched from Republican to Democrat seems to be the new Washington sport, but no one seems to have as much fun with it as the WP’s Dan Balz. Although Specter was praised by Democrats for his switch, they don’t quite trust him enough yet and Republicans, can’t stop speaking ill of him. “There is a certain justice in all of this,” Balz writes before explicitly noting that Specter is decidedly not a team player.

In an interesting front-page piece, the LAT takes a look at how it may now be legal for doctors in Washington state to help terminal patients end their lives, but that doesn’t mean it’s easy to find a physician willing to go through with the procedure, particularly in rural areas. Outside urban centers, Washington residents are left “with the same problem women seeking abortions in conservative rural communities have faced: It’s legal, but health providers’ moral qualms mean it’s essentially unavailable.”

The WP’s George Will has apparently decided he wants to cause more outrage among environmentalists, who were already clamoring for his head after a Feb. 15 column about global warming. Today, Will writes that the only way an American car company can be successful in designing a popular hybrid is if it “can do what Toyota does with the Prius: Sell its hybrid without significant, if any, profit and sustain this practice, as Toyota does, by selling about twice as many of the gas-thirsty pickup trucks that the president thinks are destroying the planet.” Will made a similar point over the weekend and several have been quick to debunk the claims, noting that Toyota and Honda make about $3,100 on each hybrid, which is similar to what they make on other cars. In fact, it seems that this business that doesn’t give Toyota much money has actually earned the company around $1 billion last year.

Gov. Arnold Schwarzenegger said there should be a large-scale study to examine the possible impact of legalizing and taxing marijuana for recreational use in California. The proposal to use marijuana to help the state with its budget woes isn’t new, and no one thinks it has much of a chance of becoming a reality anytime soon, but legalization advocates say the simple fact that Schwarzenegger seems willing to discuss the issue is important. “What stands out about Gov. Schwarzenegger’s comment is not that he thought it, but that he said it,” the executive director of the Drug Policy Alliance said. “There has been enormous fear at a political level about saying out loud and on the record that we should think about this.”