There are many things in common between the mass violence against the Sikhs in 1984 and massacre of Muslims in Gujarat in 2002. If we had done the right thing in 1984, we would not have the same kind of thing repeated in 2002. Let me elucidate.
When Prime Minister Indira Gandhi was assassinated on October 31, 1984 by her Sikh bodyguards, a strong anti-Sikh sentiment was prevalent because of the unpunished crimes committed by Bhindranwale’s followers against Hindus.
It only needed a spark to ignite a blazing fire of vengefulness. The government should have been prepared to face the flames of hatred before they became an inferno. Far from being ready to put it down, the government became a party to it. Word came from one among the topmost of leaders: “Teach the Sikhs a lesson.”
The Delhi administration and the police became parties to the looting and killing of innocent Sikhs. Police stations refused to register FIRs, rampaging mobs ignored the so-called curfew, army help was sought for, but when it turned out to be a unit of the sikh infantry, it was ordered back to the barracks.
Men like HKL Bhagat and Jagdish Tytler, named for leading mobs, remained members of the cabinet. Sajjan Kumar was re-elected to the Lok Sabha. To this day very few people have been punished for those heinous crimes. It was inevitable that if murderers could get away so lightly in Delhi, they could get away with such crimes elsewhere in India. So they did in Gujarat.
After the burning of a bogey of the train at Godhra, we are still not certain who set the compartment on fire or the identity of the victims; word went around: “Teach the Muslims a lesson.” As in Delhi, so in Gujarat the administration, police and the law courts became subservient to the wishes of the rulers and let the mobs run riot.
There is plenty of reliable evidence to nail Narendra Modi and his minions: sting operation, carried out by Tehelka, in which perpetrators of murders admitted they had been given the green signal to go ahead with their devilish crimes without fear of persecution, the case of Zahira Sheikh who was bribed to renege from her earlier statements; disclosures made by a senior IAS officer Harsh Mander and much else.
No one expects the BJP to take a moral stand on the issue. Its leaders LK Advani and Narendra Modi have a symbiotic relationship — you scratch my back, I’ll scratch yours. Modi sees that Advani gets elected to the Lok Sabha from Gandhinagar; Advani comes to Modi’s rescue whenever he is in trouble. He is in one now and BJP leaders like Arun Jaitley and Arun Shourie are poohpooing the charges against Modi as a pre-election stunt.
The all-rounder
Abhishek Singhvi, chief spokesman of the Congress Party, is an eminent lawyer and a politician. We see him on TV screens all the time. Law and politics are perhaps the two most soulless professions in the world. They have no room for art, poetry or music. So it was a pleasant surprise when my niece-in-law Malvika Singh, who knows everyone who matters, brought Abhishek’s wife Anita to my home one evening.
She seemed to have no interest either in law or politics. She was into Urdu poetry and singing ghazals. It was strange that with a Marwari background and never having learnt Urdu or Farsi, her taluffuz (pronunciation) of both was perfect.
Anita was born in Jodhpur and opted for classical Indian music in school. Starting with a Pandit of the Gwalior Gharana, she went to the Bhatkhande Sangeet Institute in Delhi. She got enamoured of ghazals, memorised verses by Amir Khusro, Ghalib, Daagh, Meer, Iqbal, Faiz and many lesser known poets.
She is gifted with a melodious voice and has held concerts in most Indian cities, Europe and the United States. She has 3 CD’s in the market; a fourth is due to be released soon. And she has an abundance of awards showered on her. She is the mother of two sons, one with a Cambridge tripos, the other at University College, London.
She looks ten years younger than her age. I asked her how she managed to combine housekeeping, looking after her husband, keeping an eye on her sons and giving concerts at different places. “I am 50, full of music. I want to explode with song if I have an audience,” she replied. “Who would you like to hear?” she said. “Ghalib is always my first choice,” I replied. And so it was: “Muddat huee hai yaar ko mehmaan kiye huey, (It has been a long time I had my lover as my guest) and went on to others. Her preference is Allama Iqbal; so she sang Iqbal and many others in Urdu and Persian. It was a music-filled hour which seemed to pass too quickly. “Lucky husband! He can hear you any time he likes,” I remarked. She roared with laughter and replied: “He doesn’t think so. He tells everyone, others hear her music, I have to face it.”
Friday, May 8, 2009
RBI Governor hints at fiscal headaches from stimulus measures
The Reserve Bank of India will focus on managing inflationary expectations and the medium-term fallouts of the recent policies as India recovers from the impact of the global economic crisis, the Central Bank’s governor said on Friday.
He was hinting at an impending surge in the fiscal deficit as stimulus measures to revive the economy reduce room for tax revenues while boosting government expenses. “When the crisis is behind us we need to think about managing inflationary expectations about the medium term consequences of policy actions in the economy and on the macro economic imbalances,” Duvvuri Subbarao said at a function to release a book by his predecessor at the job, Yaga Venugopal Reddy.
Dr Reddy’s book India and the Global Financial Crisis: Managing Money and Finance, published by Orient Blackswan deals with the causes and potential consequences of the ongoing global financial crisis. Reddy emerged as a creditable central bank head as he cracked down on speculative spending and took a hawkish line against inflation, which proved eventually helpful for India’s economy.
The book compiled from 23 select speeches of Dr Reddy when he was governor gives an insight to his policy-making acumen.
“If America had a central bank chief like Y V Reddy, the US economy could not have been in such a mess,” stated Nobel laureate Joseph E Stiglitz said last year.
Through his book, Dr Reddy provides a ringside view of the dynamics of policy making, especially the interaction between central bank and public policy.
He was hinting at an impending surge in the fiscal deficit as stimulus measures to revive the economy reduce room for tax revenues while boosting government expenses. “When the crisis is behind us we need to think about managing inflationary expectations about the medium term consequences of policy actions in the economy and on the macro economic imbalances,” Duvvuri Subbarao said at a function to release a book by his predecessor at the job, Yaga Venugopal Reddy.
Dr Reddy’s book India and the Global Financial Crisis: Managing Money and Finance, published by Orient Blackswan deals with the causes and potential consequences of the ongoing global financial crisis. Reddy emerged as a creditable central bank head as he cracked down on speculative spending and took a hawkish line against inflation, which proved eventually helpful for India’s economy.
The book compiled from 23 select speeches of Dr Reddy when he was governor gives an insight to his policy-making acumen.
“If America had a central bank chief like Y V Reddy, the US economy could not have been in such a mess,” stated Nobel laureate Joseph E Stiglitz said last year.
Through his book, Dr Reddy provides a ringside view of the dynamics of policy making, especially the interaction between central bank and public policy.
Revocation of NSA a historic moment, says Varun Gandhi
Varun Gandhi on Friday said the Uttar Pradesh Advisory Board's revoking of NSA against him has exposed the "conspiracy" by the Centre and the UP government for "petty political gain".
"I have all along expressed full faith in the judiciary and that has been completely vindicated today. I am grateful that this conspiracy by the state and the Centre for petty political gain has been exposed and deleted," Varun said.
He also said the authorities have to answer for his "illegal detention" for 20 days.
"For the 20 days that I have spent in illegal detention will have to be answered 20 times over by the authorities to the people of India. It is a historic moment, not just for me but also for Indian Democracy," Varun said in a statement.
Earlier, UP Home Secretary Javed Ahmad said, "NSA invoked against Varun Gandhi has been held invalid by the Board."
The UP government had invoked the stringent NSA against Varun for his alleged hate speeches during a political campaign in Pilibhit.
Varun was let off by the three-member Advisory board headed by senior judge of the Lucknow Bench of Allahabad High Court Justice Pradeep Kant which went into the maintainability of the BJP leader's detention by the UP government under the NSA imposed on March 29.
Varun had also personally appeared before the Board.
29-year-old Varun, who is BJP's Lok Sabha candidate from Pilibhit in UP, is currently on parole following a Supreme Court order after remaining in jail for nearly three weeks. He was released from Etah jail on April 16. His parole expires on May 14.
"I have all along expressed full faith in the judiciary and that has been completely vindicated today. I am grateful that this conspiracy by the state and the Centre for petty political gain has been exposed and deleted," Varun said.
He also said the authorities have to answer for his "illegal detention" for 20 days.
"For the 20 days that I have spent in illegal detention will have to be answered 20 times over by the authorities to the people of India. It is a historic moment, not just for me but also for Indian Democracy," Varun said in a statement.
Earlier, UP Home Secretary Javed Ahmad said, "NSA invoked against Varun Gandhi has been held invalid by the Board."
The UP government had invoked the stringent NSA against Varun for his alleged hate speeches during a political campaign in Pilibhit.
Varun was let off by the three-member Advisory board headed by senior judge of the Lucknow Bench of Allahabad High Court Justice Pradeep Kant which went into the maintainability of the BJP leader's detention by the UP government under the NSA imposed on March 29.
Varun had also personally appeared before the Board.
29-year-old Varun, who is BJP's Lok Sabha candidate from Pilibhit in UP, is currently on parole following a Supreme Court order after remaining in jail for nearly three weeks. He was released from Etah jail on April 16. His parole expires on May 14.
Britain's Brown in a spot of trouble
If foulmouthed, champagne-swilling Patsy from "Absolutely Fabulous" can shame and defeat your government, then is it time to throw in the towel?
The answer from Britons of all stripes these days is an increasingly loud 'yes' as Gordon Brown flails to stay afloat after possibly one of his worst fortnights as Britain's prime minister.
There he was Wednesday in Parliament, looking as dark as a thundercloud as the opposition mercilessly baited him and brayed for his resignation. His own Labor lawmakers staged an embarrassing revolt last week, and whisper all too loudly about replacing him. Commentators are starting to refer to Brown in the past tense.
It's all horribly dispiriting for an ambitious, intelligent man who waited a decade, as the charismatic Tony Blair's No. 2, to become prime minister, only to be dragged down by a nasty global economic downturn, blunders by his Cabinet and his own inability to connect with the British people.
Public exhaustion with the Labor Party is almost palpable. And if, as the polls suggest, he suffers a spectacular defeat in parliamentary elections that he must call sometime within the next 12 months, then his government's tussle with actress Joanna Lumley during the last two weeks may go down as the first sounding of the death knell.
Lumley is famous for her portrayal of pushy, boozy, drug-sniffing Patsy in the TV comedy "Absolutely Fabulous." But she has also been a dogged, and admired, advocate on behalf of the Gurkhas, the storied Nepalese soldiers who have been serving in the British army since the 19th century.
Lumley's father served alongside Gurkhas, which is why she has embraced their campaign to loosen restrictions on their right to settle in the country for which they risked life and limb.
Many Britons agree with her. But Brown's government did not, resulting in a showdown in the House of Commons last week. In a shock defeat for Brown, more than two dozen Labor lawmakers revolted and dozens more abstained, leaving the government humiliated.
A plan put forward by Brown to reform lawmakers' perks was also partially shot down last week, even after he made a much-derided YouTube video to promote it. Never one to inspire warmth or adulation for his oratory, Brown apparently felt that a YouTube appearance could help him shed his image as dour, scowling and out of touch.
The Times of London gleefully pointed out that the link had only attracted a few thousand hits, whereas one of Brown picking his nose had drawn hundreds of thousands of viewers and another video of an obscure Conservative politician bad-mouthing Brown in the even more obscure Euro- pean Parliament had earned more than 2 million hits.
To many observers, Brown's government now looks like a beast in its death throes, and the prime minister himself appears tired and bewildered, a leader increasingly without followers and seemingly unable to put the right foot forward.
After he appeared on a Sunday talk show last weekend, Anne Treneman, a parliamentary sketch writer, described Brown as resembling "a shipwreck."
"Oh, Gordon. Look in the mirror. The eye bags are so heavy that, on an airline, you'd be fined for excess luggage. Do you look tired? No, you look exhausted," Treneman wrote.
With his authority compromised by his defeats in Parliament, Brown's energy is now being used in part to defend his position from potential challengers within his own party. In an extraordinary display last week, Cabinet ministers were trotted out for television talk shows to proclaim that they had no interest at all -- at all -- in becoming prime minister themselves and that Brown was still the best man for the job.
That voters will agree with them, whenever the general elections take place between now and next May, is looking less likely.
In Parliament on Wednesday, during the weekly verbal boxing session known as Prime Minister's Questions, the Conservative Party leader and likely next premier, David Cameron, told Brown to do the decent thing and call elections now. Other opposition politicians also got up to mock a leader whose blood they smell more strongly than ever.
"Bears in Tudor times, [substitute] teachers, the Elephant Man -- they all got taunted dreadfully and it was an unpleasant, disconcerting sight," Simon Hoggart wrote in Thursday's Guardian, a newspaper that sides with Labor. "It isn't much prettier when it's done to Gordon Brown."
The answer from Britons of all stripes these days is an increasingly loud 'yes' as Gordon Brown flails to stay afloat after possibly one of his worst fortnights as Britain's prime minister.
There he was Wednesday in Parliament, looking as dark as a thundercloud as the opposition mercilessly baited him and brayed for his resignation. His own Labor lawmakers staged an embarrassing revolt last week, and whisper all too loudly about replacing him. Commentators are starting to refer to Brown in the past tense.
It's all horribly dispiriting for an ambitious, intelligent man who waited a decade, as the charismatic Tony Blair's No. 2, to become prime minister, only to be dragged down by a nasty global economic downturn, blunders by his Cabinet and his own inability to connect with the British people.
Public exhaustion with the Labor Party is almost palpable. And if, as the polls suggest, he suffers a spectacular defeat in parliamentary elections that he must call sometime within the next 12 months, then his government's tussle with actress Joanna Lumley during the last two weeks may go down as the first sounding of the death knell.
Lumley is famous for her portrayal of pushy, boozy, drug-sniffing Patsy in the TV comedy "Absolutely Fabulous." But she has also been a dogged, and admired, advocate on behalf of the Gurkhas, the storied Nepalese soldiers who have been serving in the British army since the 19th century.
Lumley's father served alongside Gurkhas, which is why she has embraced their campaign to loosen restrictions on their right to settle in the country for which they risked life and limb.
Many Britons agree with her. But Brown's government did not, resulting in a showdown in the House of Commons last week. In a shock defeat for Brown, more than two dozen Labor lawmakers revolted and dozens more abstained, leaving the government humiliated.
A plan put forward by Brown to reform lawmakers' perks was also partially shot down last week, even after he made a much-derided YouTube video to promote it. Never one to inspire warmth or adulation for his oratory, Brown apparently felt that a YouTube appearance could help him shed his image as dour, scowling and out of touch.
The Times of London gleefully pointed out that the link had only attracted a few thousand hits, whereas one of Brown picking his nose had drawn hundreds of thousands of viewers and another video of an obscure Conservative politician bad-mouthing Brown in the even more obscure Euro- pean Parliament had earned more than 2 million hits.
To many observers, Brown's government now looks like a beast in its death throes, and the prime minister himself appears tired and bewildered, a leader increasingly without followers and seemingly unable to put the right foot forward.
After he appeared on a Sunday talk show last weekend, Anne Treneman, a parliamentary sketch writer, described Brown as resembling "a shipwreck."
"Oh, Gordon. Look in the mirror. The eye bags are so heavy that, on an airline, you'd be fined for excess luggage. Do you look tired? No, you look exhausted," Treneman wrote.
With his authority compromised by his defeats in Parliament, Brown's energy is now being used in part to defend his position from potential challengers within his own party. In an extraordinary display last week, Cabinet ministers were trotted out for television talk shows to proclaim that they had no interest at all -- at all -- in becoming prime minister themselves and that Brown was still the best man for the job.
That voters will agree with them, whenever the general elections take place between now and next May, is looking less likely.
In Parliament on Wednesday, during the weekly verbal boxing session known as Prime Minister's Questions, the Conservative Party leader and likely next premier, David Cameron, told Brown to do the decent thing and call elections now. Other opposition politicians also got up to mock a leader whose blood they smell more strongly than ever.
"Bears in Tudor times, [substitute] teachers, the Elephant Man -- they all got taunted dreadfully and it was an unpleasant, disconcerting sight," Simon Hoggart wrote in Thursday's Guardian, a newspaper that sides with Labor. "It isn't much prettier when it's done to Gordon Brown."
Anxiety over 'stressed' banking system
The results of the Federal Reserve's "stress tests" on 19 of the country's largest banks were among Washington's worst-kept secrets, with abundant leaks about the multibillion-dollar capital shortages at Bank of America and other giants. So it came as little surprise Thursday afternoon when the Fed's Board of Governors announced that only nine of the banks had come through the tests with no need for additional money.
The other 10 will be required to raise nearly $75 billion from either private investors or the federal government. That amount was less than some observers had feared, and Treasury Secretary Timothy F. Geithner called the results "reassuring.” But our reaction is just the opposite. We're dismayed by the prospect of the government taking an even bigger stake in the banking industry. And we're still waiting for some market-based mechanisms to deter banks from becoming so systemically important that the government is compellIt's probably misleading to describe the Fed's assessment as a test -- there was no chance of failure. In fact, the whole point was to tell financial markets two ostensibly encouraging things: that each of the 19 banks could survive a worse downturn than most economists expect (although some would need more capital to do so) and that the government stood ready to provide this capital if private investors would not. In other words, the underlying purpose of the exercise was to show that the government would not let any of the companies be scuttled by the recession, tight credit markets or their own bad bets.
That has been the Obama administration's consistent mantra, and it mirrors the approach taken by the Bush administration after the government failed to halt Lehman Bros.' precipitous demise. Lending all but ceased when Lehman defaulted, and there's no telling how much the recession would be prolonged if another major bankruptcy froze lending again. But such "too big to fail" treatment distorts the markets in a number of important and noxious ways. Companies whose solvency is implicitly guaranteed by the government don't have to pay as much for the money they borrow to fund their operations, giving them a competitive advantage, and they're more cavalier about risk. So they have a strong incentive to become so complex and interconnected that the government will be compelled to bail them out if they stumble again.
Geithner has announced plans to develop new rules for companies that threaten the entire financial system, and they're warranted. But it's just as important to thin the ranks of such companies. There are a number of promising ways to do so, such as imposing larger and more costly capital requirements on the financial industry giants, mandating that extra reserves be available during tough times, discouraging mergers that would create systemic risk and requiring that some of a bank's debt be convertible to stock in the event it gets into financial trouble. The system also needs more transparency so investors and regulators can see just how intertwined these companies are, and with whom. Such steps would not only reduce the potential for another collapse but would take taxpayers out of the role of the big banks' guardian angels.
The other 10 will be required to raise nearly $75 billion from either private investors or the federal government. That amount was less than some observers had feared, and Treasury Secretary Timothy F. Geithner called the results "reassuring.” But our reaction is just the opposite. We're dismayed by the prospect of the government taking an even bigger stake in the banking industry. And we're still waiting for some market-based mechanisms to deter banks from becoming so systemically important that the government is compellIt's probably misleading to describe the Fed's assessment as a test -- there was no chance of failure. In fact, the whole point was to tell financial markets two ostensibly encouraging things: that each of the 19 banks could survive a worse downturn than most economists expect (although some would need more capital to do so) and that the government stood ready to provide this capital if private investors would not. In other words, the underlying purpose of the exercise was to show that the government would not let any of the companies be scuttled by the recession, tight credit markets or their own bad bets.
That has been the Obama administration's consistent mantra, and it mirrors the approach taken by the Bush administration after the government failed to halt Lehman Bros.' precipitous demise. Lending all but ceased when Lehman defaulted, and there's no telling how much the recession would be prolonged if another major bankruptcy froze lending again. But such "too big to fail" treatment distorts the markets in a number of important and noxious ways. Companies whose solvency is implicitly guaranteed by the government don't have to pay as much for the money they borrow to fund their operations, giving them a competitive advantage, and they're more cavalier about risk. So they have a strong incentive to become so complex and interconnected that the government will be compelled to bail them out if they stumble again.
Geithner has announced plans to develop new rules for companies that threaten the entire financial system, and they're warranted. But it's just as important to thin the ranks of such companies. There are a number of promising ways to do so, such as imposing larger and more costly capital requirements on the financial industry giants, mandating that extra reserves be available during tough times, discouraging mergers that would create systemic risk and requiring that some of a bank's debt be convertible to stock in the event it gets into financial trouble. The system also needs more transparency so investors and regulators can see just how intertwined these companies are, and with whom. Such steps would not only reduce the potential for another collapse but would take taxpayers out of the role of the big banks' guardian angels.
2 Banks Cited in Stress Tests Find Ready Investors
Finally, it was a moment for thA day after the bank stress tests were released, two major institutions, Wells Fargo and Morgan Stanley, handily raised billions of dollars in the capital markets on Friday to satisfy new federal demands for more capital. A third, Bank of America, hastily laid out plans to sell billions of dollars in new stock.
The speed and ease with which the banks swung into action, combined with a surge in financial shares, was hailed as a sign that confidence was returning to the financial industry. The sales seemed to put to rest questions about whether big banks would be able to lure private investors, rather than have to turn to the government again.
While the results of the tests on 19 major banks, released by the administration on Thursday, were far more positive than many had expected, they nevertheless created an immediate urgency for 10 banks to raise new capital. Federal regulators ordered them to raise a combined $75 billion to buffer their potential losses.
With some off to such a rapid start — Goldman Sachs raised $5 billion before the stress test results were announced — the race is now on among the most robust to repay the government money they received last fall and so escape from government control.
But while the mood was generally buoyant among these leaders, others still have to spell out how exactly they will raise money — or accept further federal aid.
GMAC, the onetime finance arm of General Motors, was deemed by the regulators to need an extra $11.5 billion in capital. On Friday, Treasury Secretary Timothy F. Geithner indicated that this was likely to have to come from the government and that the administration would stand behind GMAC.
The stress tests estimated how much each bank would lose if the economic downturn proved even deeper than currently expected: under the worst-case assumptions, with an unemployment rate of 10.3 percent, the losses by the 19 banks could total $600 billion.
On Friday, economic data showed the American economy lost a further 539,000 jobs in April and the unemployment rate leapt to 8.9 percent — a sign that the United States might already be heading toward the worst case, although the job losses were less than Wall Street expected.
Despite the sobering outlook, the mood on Wall Street was generally upbeat after the rosier-than-expected assessment of the biggest banks. The stock market climbed, with the Standard & Poor’s 500-stock index gaining 2.4 percent on Friday.
“If there were holes in this, the market would have seen it,” said Stuart Plesser, an analyst at Standard & Poor’s.
In the capital-raising exercises, Wells Fargo sold $7.5 billion of common stock; regulators ruled it needed to fill a capital hole of $13.7 billion.
Morgan Stanley raised $8 billion by selling $4 billion in common stock and $4 billion in bonds. It increased the total amount it raised compared with its initial plans by $3 billion because of strong investor demand, it said. Regulators had declared that the investment bank needed to raise money to fill a $1.8 billion hole.
In an important signal of its future intentions, Morgan Stanley raised its debt without the guarantee of the Federal Deposit Insurance Corporation — a show of strength that is one of the government’s requirements for paying back money from the Troubled Asset Relief Program. JPMorgan Chase and Goldman Sachs, which are also eager to repay TARP funds, have recently gone through similar debt-raising exercises.
Bank of America, judged one of the weaker institutions, registered its intention to sell 1.25 billion common shares over the coming weeks. At Friday’s closing stock price, that amount of stock would be valued at nearly $18 billion, which means the bank might not have to turn to another possible means of raising money like converting preferred shares into common equity.
Citigroup, which for many has come to stand for the problems plaguing the financial industry, was told by regulators that it must raise $5.5 billion, in addition to its recent efforts to raise capital by selling businesses and converting to common stock just over half of the $45 billion of its preferred stock held by the government.
On Friday, Vikram S. Pandit, Citi’s chief executive, held a town hall meeting at Citigroup’s investment banking offices in New York, where he told staff members the test results had validated his strategy of righting the company.
But Meredith A. Whitney, a prominent banking analyst, said the results underscored the difficulties banks faced. Many are likely to experience several more quarters of poor financial results.
“The revenue environment is very different,” Ms. Whitney said. Given the recession, banks are not going to make much money from credit cards or originating mortgages, she said. And even if all the banks secured more capital, they still might not lend, holding back the economy.
Some analysts are now saying that some of the assumptions even in the worst-case situation may turn out to be too optimistic.
Given this, attention is now turning to the thousands of smaller banks elsewhere in the country and whether they will be able to survive any deterioration in economic conditions. Mr. Plesser said that these banks would face extra capital needs and that there might be consolidation among them.
“It’s not the same urgency as the big 19, but I think we are going to see needs for additional capital, and one way to get that is to be swallowed up,” he said.
e banks to de-stress
The speed and ease with which the banks swung into action, combined with a surge in financial shares, was hailed as a sign that confidence was returning to the financial industry. The sales seemed to put to rest questions about whether big banks would be able to lure private investors, rather than have to turn to the government again.
While the results of the tests on 19 major banks, released by the administration on Thursday, were far more positive than many had expected, they nevertheless created an immediate urgency for 10 banks to raise new capital. Federal regulators ordered them to raise a combined $75 billion to buffer their potential losses.
With some off to such a rapid start — Goldman Sachs raised $5 billion before the stress test results were announced — the race is now on among the most robust to repay the government money they received last fall and so escape from government control.
But while the mood was generally buoyant among these leaders, others still have to spell out how exactly they will raise money — or accept further federal aid.
GMAC, the onetime finance arm of General Motors, was deemed by the regulators to need an extra $11.5 billion in capital. On Friday, Treasury Secretary Timothy F. Geithner indicated that this was likely to have to come from the government and that the administration would stand behind GMAC.
The stress tests estimated how much each bank would lose if the economic downturn proved even deeper than currently expected: under the worst-case assumptions, with an unemployment rate of 10.3 percent, the losses by the 19 banks could total $600 billion.
On Friday, economic data showed the American economy lost a further 539,000 jobs in April and the unemployment rate leapt to 8.9 percent — a sign that the United States might already be heading toward the worst case, although the job losses were less than Wall Street expected.
Despite the sobering outlook, the mood on Wall Street was generally upbeat after the rosier-than-expected assessment of the biggest banks. The stock market climbed, with the Standard & Poor’s 500-stock index gaining 2.4 percent on Friday.
“If there were holes in this, the market would have seen it,” said Stuart Plesser, an analyst at Standard & Poor’s.
In the capital-raising exercises, Wells Fargo sold $7.5 billion of common stock; regulators ruled it needed to fill a capital hole of $13.7 billion.
Morgan Stanley raised $8 billion by selling $4 billion in common stock and $4 billion in bonds. It increased the total amount it raised compared with its initial plans by $3 billion because of strong investor demand, it said. Regulators had declared that the investment bank needed to raise money to fill a $1.8 billion hole.
In an important signal of its future intentions, Morgan Stanley raised its debt without the guarantee of the Federal Deposit Insurance Corporation — a show of strength that is one of the government’s requirements for paying back money from the Troubled Asset Relief Program. JPMorgan Chase and Goldman Sachs, which are also eager to repay TARP funds, have recently gone through similar debt-raising exercises.
Bank of America, judged one of the weaker institutions, registered its intention to sell 1.25 billion common shares over the coming weeks. At Friday’s closing stock price, that amount of stock would be valued at nearly $18 billion, which means the bank might not have to turn to another possible means of raising money like converting preferred shares into common equity.
Citigroup, which for many has come to stand for the problems plaguing the financial industry, was told by regulators that it must raise $5.5 billion, in addition to its recent efforts to raise capital by selling businesses and converting to common stock just over half of the $45 billion of its preferred stock held by the government.
On Friday, Vikram S. Pandit, Citi’s chief executive, held a town hall meeting at Citigroup’s investment banking offices in New York, where he told staff members the test results had validated his strategy of righting the company.
But Meredith A. Whitney, a prominent banking analyst, said the results underscored the difficulties banks faced. Many are likely to experience several more quarters of poor financial results.
“The revenue environment is very different,” Ms. Whitney said. Given the recession, banks are not going to make much money from credit cards or originating mortgages, she said. And even if all the banks secured more capital, they still might not lend, holding back the economy.
Some analysts are now saying that some of the assumptions even in the worst-case situation may turn out to be too optimistic.
Given this, attention is now turning to the thousands of smaller banks elsewhere in the country and whether they will be able to survive any deterioration in economic conditions. Mr. Plesser said that these banks would face extra capital needs and that there might be consolidation among them.
“It’s not the same urgency as the big 19, but I think we are going to see needs for additional capital, and one way to get that is to be swallowed up,” he said.
e banks to de-stress
Fine Line for Obama on How to Convey Hope on Economy
The formula for restoring national confidence — part good policy, part good politics, part good luck — can be hard to find. It eluded Herbert Hoover after the Crash of ’29, Lyndon B. Johnson after the Tet offensive, Jimmy Carter after the energy shock and George W. Bush after Iraq turned from quick victory to bloody insurgency.
But President Obama has to try to do just that in a time of crisis. As the government announced this week that the nation’s largest banks had steered away from the precipice and that job losses were beginning to slow, Mr. Obama has carefully begun trying to mine any national leader’s most precious commodity in a crisis: optimism.
His past references to “glimmers of hope” were modestly upgraded at the White House on Friday, with his declaration — which he stumbled over, taking some of the assertiveness out of the line — that “the gears of our economic engine do appear to be slowly turning once again.”
His aides have been reaching tentatively for similar metaphors, then adding, as Mr. Obama quickly did, that real recovery is months, if not years, ahead.
Fear and aversion to risk have been part of the economy’s problems since the downturn began, and Mr. Obama’s aides have been highly attuned to the risks of a downward spiral of pessimism. In recent weeks, his economic team has begun flagging signs that the worst could be over, even as it carefully released the results of its bank examinations in a way that suggested a desire to reassure the financial markets and consumers. They got a bit of backing this week from the Federal Reserve chairman, Ben S. Bernanke, who forecast that the economy was likely to begin growing again by the end of the year.
“Remember this central paradox of financial crisis,” Lawrence H. Summers, Mr. Obama’s top economic adviser in the White House, said in mid-March, when every arrow was pointing down, “that while the problem was caused by excessive complacency and excessive optimism, what we need today is more optimism and more confidence.”
Mr. Obama’s own words on Friday signaled that he was worried about the perils of getting out ahead of the numbers. He spent more time talking about the letters he received from the desperate and out-of-work than he did dwelling on the decline in the pace at which Americans are losing their jobs. After all, 539,000 job losses in a single month is not exactly cause for celebration, even if it represents an improvement over the previous month.
“There’s a kind of artistry to this, isn’t there?” said Robert Dallek, the presidential historian best known for chronicling how Lyndon Johnson, the consummate politician, never led the public out of its view that everything was falling apart. “You don’t want to come out and say the recession is over. You want to do a version of Churchill’s line about how this isn’t the end, or the beginning of the end, but rather the end of the beginning.”
In Mr. Obama’s case, polls showed that a significant chunk of the public was predisposed to look for the bright side. The proportion of Americans who said the country was moving in the right direction rose to 41 percent in a New York Times/CBS News poll last month, from 15 percent in January just before his inauguration, even though by nearly every measure the economy was getting worse during that period. But there are plenty of skeptics out there, from economic historians who know that history is littered with false recoveries, to those who argue that Mr. Obama has engineered a turnaround at the cost of phenomenal deficits and a huge new role for the government in the private sector.
Robert Reich, President Bill Clinton’s secretary of labor and one of Mr. Obama’s critics on the left, was on television Friday arguing that to create this sense of optimism Mr. Obama’s team essentially put its finger on the scale when weighing the ability of the banks to survive a deeper downturn.
Given the depth of the concerns about the stability of the financial system and the debates about whether Mr. Obama was being tough enough on the banks, administration officials recognized that they could not afford the kind of mistake they made in early February, when Timothy F. Geithner, new to his job as Treasury secretary, provided vague assurances that the banks would be saved but said he was not prepared to give details. He was hammered in the markets and derided as inexperienced.
So when it came to releasing the results of the bank stress tests, much was done differently. When the tests were first announced in late February, administration officials said that bank-by-bank results would not be announced. It quickly became clear that would court disaster: Banks that were given a clean bill of health would scream that news to the markets, leaving the rest of the 19 appearing to be in far direr straits.
Inside the administration, according to two officials, Mr. Geithner argued that the results had to be announced in considerable detail. And this week Mr. Geithner defended the soundness of the administration’s approach.
“A huge part of the dynamic of a crisis is confidence,” Mr. Geithner said in a telephone interview on Friday. He was influenced in part by his days as a young Treasury official in the American Embassy in Japan, where he saw what happened when the Japanese government talked up the economy but failed to act.
He said Mr. Obama was opting for “directness and candor and openness about the scope of the problem,” but steering clear of “talking up the numbers” in ways that predict what the future will bring.
But administration officials said they recognized that the numbers that resound most with Americans were the unemployment statistics, and those were usually the last to recover. They are also subject to surprise downturns, which explains Mr. Obama’s hesitance to describe the job-loss figures on Friday as the beginning of an improving trend.
“The hardest part of this is balancing optimism with credibility,” said Mr. Dallek. “Hoover’s ‘Happy days are here again’ wasn’t credible. Bush’s ‘Mission accomplished’ became a running joke. No one wants to make that mistake again.”
But President Obama has to try to do just that in a time of crisis. As the government announced this week that the nation’s largest banks had steered away from the precipice and that job losses were beginning to slow, Mr. Obama has carefully begun trying to mine any national leader’s most precious commodity in a crisis: optimism.
His past references to “glimmers of hope” were modestly upgraded at the White House on Friday, with his declaration — which he stumbled over, taking some of the assertiveness out of the line — that “the gears of our economic engine do appear to be slowly turning once again.”
His aides have been reaching tentatively for similar metaphors, then adding, as Mr. Obama quickly did, that real recovery is months, if not years, ahead.
Fear and aversion to risk have been part of the economy’s problems since the downturn began, and Mr. Obama’s aides have been highly attuned to the risks of a downward spiral of pessimism. In recent weeks, his economic team has begun flagging signs that the worst could be over, even as it carefully released the results of its bank examinations in a way that suggested a desire to reassure the financial markets and consumers. They got a bit of backing this week from the Federal Reserve chairman, Ben S. Bernanke, who forecast that the economy was likely to begin growing again by the end of the year.
“Remember this central paradox of financial crisis,” Lawrence H. Summers, Mr. Obama’s top economic adviser in the White House, said in mid-March, when every arrow was pointing down, “that while the problem was caused by excessive complacency and excessive optimism, what we need today is more optimism and more confidence.”
Mr. Obama’s own words on Friday signaled that he was worried about the perils of getting out ahead of the numbers. He spent more time talking about the letters he received from the desperate and out-of-work than he did dwelling on the decline in the pace at which Americans are losing their jobs. After all, 539,000 job losses in a single month is not exactly cause for celebration, even if it represents an improvement over the previous month.
“There’s a kind of artistry to this, isn’t there?” said Robert Dallek, the presidential historian best known for chronicling how Lyndon Johnson, the consummate politician, never led the public out of its view that everything was falling apart. “You don’t want to come out and say the recession is over. You want to do a version of Churchill’s line about how this isn’t the end, or the beginning of the end, but rather the end of the beginning.”
In Mr. Obama’s case, polls showed that a significant chunk of the public was predisposed to look for the bright side. The proportion of Americans who said the country was moving in the right direction rose to 41 percent in a New York Times/CBS News poll last month, from 15 percent in January just before his inauguration, even though by nearly every measure the economy was getting worse during that period. But there are plenty of skeptics out there, from economic historians who know that history is littered with false recoveries, to those who argue that Mr. Obama has engineered a turnaround at the cost of phenomenal deficits and a huge new role for the government in the private sector.
Robert Reich, President Bill Clinton’s secretary of labor and one of Mr. Obama’s critics on the left, was on television Friday arguing that to create this sense of optimism Mr. Obama’s team essentially put its finger on the scale when weighing the ability of the banks to survive a deeper downturn.
Given the depth of the concerns about the stability of the financial system and the debates about whether Mr. Obama was being tough enough on the banks, administration officials recognized that they could not afford the kind of mistake they made in early February, when Timothy F. Geithner, new to his job as Treasury secretary, provided vague assurances that the banks would be saved but said he was not prepared to give details. He was hammered in the markets and derided as inexperienced.
So when it came to releasing the results of the bank stress tests, much was done differently. When the tests were first announced in late February, administration officials said that bank-by-bank results would not be announced. It quickly became clear that would court disaster: Banks that were given a clean bill of health would scream that news to the markets, leaving the rest of the 19 appearing to be in far direr straits.
Inside the administration, according to two officials, Mr. Geithner argued that the results had to be announced in considerable detail. And this week Mr. Geithner defended the soundness of the administration’s approach.
“A huge part of the dynamic of a crisis is confidence,” Mr. Geithner said in a telephone interview on Friday. He was influenced in part by his days as a young Treasury official in the American Embassy in Japan, where he saw what happened when the Japanese government talked up the economy but failed to act.
He said Mr. Obama was opting for “directness and candor and openness about the scope of the problem,” but steering clear of “talking up the numbers” in ways that predict what the future will bring.
But administration officials said they recognized that the numbers that resound most with Americans were the unemployment statistics, and those were usually the last to recover. They are also subject to surprise downturns, which explains Mr. Obama’s hesitance to describe the job-loss figures on Friday as the beginning of an improving trend.
“The hardest part of this is balancing optimism with credibility,” said Mr. Dallek. “Hoover’s ‘Happy days are here again’ wasn’t credible. Bush’s ‘Mission accomplished’ became a running joke. No one wants to make that mistake again.”
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