Time to Stress Out About Stress Tests

Washington is leading us to a second crisis: Krugman
By Jason Farago,  Newser Staff
Posted May 8, 2009 7:22 AM CDT
Citibank was one of the banks to require further capitalization after the completion of Washington's stress tests.   (AP Photo/Matt Rourke)
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(Newser) – Sure, yesterday's release of the stress tests' results felt pretty anti-climatic. But while bankers might be reassured, Americans have no reason to be, writes Paul Krugman. For the New York Times columnist, the less-than-rigorous stress tests are part and parcel of an Obama administration strategy to "muddle through the financial crisis," creating "a heads-they-win-tails-we-lose situation. If all goes well, the bankers will win big. If the current strategy fails, taxpayers will be forced to pay for another bailout."

It's bad enough that Washington is failing to recapitalize the cash-poor banks further, which will encourage "a prolonged, Japanese-style era of high unemployment and weak growth." Worse still, Wall Street is watching the Obama team's mild response to the crisis as encouragement to go back to its work excesses. Tim Geithner might think the stress tests' results are "reassuring," says Krugman, but "the rest of us should be very, very afraid."