Stress Testing the Stress Tests

Receiving Wide Coverage ...

Stress Relief: As banks announced a wave of dividend increases and stock repurchase plans after getting their stress test marks from the Fed, an article in the Times foregrounded criticism that the capital payouts are too much and too soon. Luminaries, including Stanford's Anat Admati, denounced the central bank for irresponsibility and appeasement, and faulted the process for failing to reckon with potentially nightmarish legal liabilities. In the Journal, an article focused on the egg on Citi's face after the Fed blocked it from delivering on its long-time promise to begin returning capital to shareholders this year. "Heard on the Street" looked at leverage ratios under the most severe stress scenario, and commented that they appear "eerily reminiscent of levels seen at investment banks before the crisis."

Farewell Letter: Lots of ink was spilled over how much ink was spilled over former Goldman executive Greg Smith's resignation letter to all, in which he described sales meetings where not a single minute was devoted to considering the interests of clients, and in which he accused Chief Executive Lloyd Blankfein and President Gary Cohn of allowing the firm's cultural entropy. In the Journal, an article outlined Goldman's public relations damage control effort. An "Overheard" item noted that Goldman's shares traded down on the news, but that the price of insurance against the company's default fell as debt investors appeared "more interested in the Federal Reserve's policy pronouncement Tuesday and the results of the bank 'stress tests.'"

In the Times, an article cited an unnamed Goldman client who asserted that she was indeed a big girl, calling the letter "naïve" and "saying that the firm had been trading against its clients for years. 'Come on, that is what they do and they are good traders, so I do business with them.'" A wide-lens piece said that "if greed were to be countenanced, it should be long-term greed, not short-term greed, in the words of Gus Levy, who led Goldman Sachs in the 1960s and '70s. With long-term greed, money was made with clients, not from them." The paper also posted an item surveying new media takes on the episode (including video parodies) and an item on "Muppets"-style epithets in other industries. ("Clampett," apparently, is not a synonym for "whale" in the securities industry, despite all the oil money, but rather an "infrequent leisure traveler" to flight attendants.)

Wall Street Journal

The paper used Fannie's and Freddie's recent 10-Ks as an occasion to tally the relentless pace of demands that lenders repurchase shoddy mortgages they originated. Such claims roughly doubled at Fannie in 2011, but fell by about half at Freddie.