Here, more or less, is the state of the U.S. financial system as we enter the second half of 2009: The top 20 U.S. banks have survived a government stress test and begun raising private capital. The three-month London Interbank Offered Rate, which rises when banks are illiquid, has declined steadily since March. Several recipients of government bailout funds have repaid them. The Treasury Department felt confident enough of the system's soundness to deny further help this week to CIT Group, a previous recipient of bailout money.
All of this good news must be marked "tentative," of course, for the simple reason that the banks are floating on a sea of government-supplied liquidity, in the form of a near-zero Federal Reserve target rate, open-ended Treasury support to Fannie Mae and Freddie Mac, and multiple government credit guarantees. This is far from a self-sustaining recovery, and a new shock could push the system back to the brink. But all things considered, we could be doing much worse.
Under the circumstances, you might have thought Congress would hold a hearing about what has gone right so far and how to turn this incipient and vulnerable progress into something more permanent. Instead, we got Thursday's backward-looking affair at the House Committee on Oversight and Government Reform, the latest in a series of sessions aimed at December's federally engineered merger of Bank of America and Merrill Lynch, which has ended up costing taxpayers about $50 billion. Resentment of bailing out Wall Street is a bipartisan affair, so both Republicans and Democrats on this committee are determined to show how wrong it was for officials ... to strong-arm Bank of America chief executive Kenneth Lewis into swallowing Merrill even after it turned out that the former Wall Street powerhouse faced much bigger losses than previously known.
Brainerd Dispatch ©2013. All Rights Reserved.