It’s been said-though I’ve never tried it-that if you put a frog in a pan and heat the water gradually, he won’t jump out.
Is that what’s happening with the “Stress Test” results? We’ve been hearing leaks and counter-leaks for days. First four banks need help. Then about ten. Bank of America needs $5 billion. Make that ten. What’s going on?
My guess is that the government is feeding out trial balloons, in order to test what kind of response they’ll get. Hey, it’s a major decision to dilute Citi shareholders by half, just because some obscure ratio that no one heard of before will fall if unemployment reaches 10% and stays there a year. For that we want to tick off the Saudi royal family? Those guys carry swords!
So the leaks keep coming, and the temperature of the water keeps rising. By anchoring investor expectations, Treasury is trying to keep them from jumping.
Douglas R. Tengdin, CFA
Chief Investment Officer
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