The Smalley Test

(Oh banksters, you're good enough, smart enough and doggone it the Federales like you! -AM)

April 12, 2009 at 11:09 AM
Huffington Post
By Sam Stein

With the banking industry suffering from a crisis in confidence as much as liquidity, Paul Krugman says the Treasury Department will likely sugarcoat the stress test it is applying to the banks so that all of them are deemed solvent.

"This stress test, I have to say, it is sounding like a class of self-esteem: 'You are all wonderful, each in your own way,'" said the Nobel Prize winning economist. "I don't think they are going to let anybody fail."

Appearing on ABC's This Week, Krugman was prompted by a remark from host George Stephanopoulos, who noted that the political (and actual) capital being afforded to the Obama administration was running out.

"Politically, you cannot get more money for the TARP and the second stimulus plan," said Stephanopoulos. "That would then lead to the temptation in the Treasury Department to sugarcoat what they are going to see from the banks, so that they don't have to ask for more money."