When people look back on the near-collapse of the banking system they may say that the Congress and Henry Paulson threw enough money into the path of the oncoming failure of the credit system to slow it down so that the government could properly go through the process of guaranteeing parts of the balance sheets of firms including Citigroup (C) and Bank of America (BAC). The initial TARP may also have provided time for the new Administration to put together its widely hailed bank "stress test" program meant to determine which of the big financial institutions have dysentery and which do not. Finally, the hundreds of billions of dollars that went into the largest banks late last year allowed Secretary Geithner to produce his public/private partnership to buy toxic assets off of bank balance sheets.This is staggeringly arrogant, ignorant, and completely self-serving. This right here represents not only the mind-numbingly incorrect view that the crisis is over and that the banks are all magically fixed based on one bank's shifty earning report, but that in fact the banks can go on operating as just as they did 12 months ago.
All of those plans, no matter how well-intentioned they may seem, are unnecessary now. Wells Fargo (WFC) indicated that it made about $3 billion in the first quarter of the year and declared its buyout of the deeply troubled Wachovia to be a success. Wells Fargo (WFC) said that the low cost of money from the government combined with a surging demand for mortgages was all the medicine that it required.
Banks stocks reacted to the news, which took the markets completely by surprise, by driving up Wells Fargo's stock by 32%. Bank of America (BAC) shares jumped 35%.
Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well. The same holds true for the Geithner plan to take toxic assets off bank balance sheets. It is academic now. What banks are earning from the difference between the cost of capital and the income from lending is now great enough for the banking system to be self-sustaining again.
That's it. Everything's hunky dory. A little more regulation, maybe a bit less power...but the banks are not only all solvent now, they are self-sustaining, profitable institutions that the government and taxpayers should no longer worry about.
McIntyre speaks in past tense.
I warn of the future. Into the Future Stupidity file this goes.