Both Paul Krugman and John Hempton of Bronte Capital have raised the question: who is leaking the stress tests.
Krugman raises the point that it could be that the leaks are coming from officials tryng to curry favour with journalists. Alternatively, they may be trial balloons for future policy ideas.
Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (“Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)
Actually, we’d guess this trial balloon theory is exactly right. It’s been the M.O. of the Obama administration right from the start. Way back in February, we pointed out that the adminstration seemed to be leaking contradictory stories almost daily.
The Obama administration is planning a bad bank. Oh, never mind. It’s planning to insure assets. Nope. Not anymore. They’ve gone back to TARP 1.5, planning to do capital injections to prop up faltering banks.
If you’ve been following the developing story of the new president’s financial rescue package, you may have developed a case of whiplash. Every day it seems stories are leaking out from “people familiar with the matter” about a new version of the plan the Obama administration has crafted. Why are there so many serially contradictory stories coming out?
Cynics will want to blame the press. There’s a certain set of people who believe that members of the press regularly make things up or rely on shoddy sources. This is largely a false view. There’s far less outright lying in the press than ever before. If anything, the press is too willing to repeat what they are told by their well-placed sources. They’re not making stuff up, for the most part.
Maybe the Obama administration is attempting to guage the reaction of the public and the markets to its plans by leaking out different version. This is a time-honored political tactic, known as ‘running a flag up a pole and seeing who salutes.’ In this case, however, it may be creating more uncertainty in the markets and projecting an impression of an administration on unsure footing.
Perhaps the most disturbing possibility is that the leaks represent a lack of discipline in the administration, with various cabinet members attempting to craft policy by arguing for it in the papers. This has also happened in the past, and it is never a good sign. It’s particularly disturbing because it would show that Obama lacks real control over his chiefs.