The New York Times leads with, while the Wall Street Journalbanners, the much-awaited "stress test" results of the nation's biggest banks. And, yes, the actual results are pretty much as the papers previewed them yesterday: Everyone's fine except some that will need a few billion here and there to bolster their coffers, just in case. Overall, the government determined that 10 of the 19 largest banks need to raise a total of $75 billion in common equity to be ready for future losses. And the future losses could be great. The government said that the 19 biggest banks could lose as much as $600 billion through the end of next year if the economy performs worse than expected. But as the Los Angeles Timesmakes clear, this estimate involved a "worse-case scenario" and not a "worst-case scenario, as critics wanted."
The Washington Postleads with a look at how Democrats were quick to attack President Obama's proposal to cut $17 billion from 121 government programs. The proposed decreases would amount to a mere 0.5 percent of next year's budget, but lawmakers were quick to come to the defense of some of their favorite initiatives. The development demonstrates how Obama will have to fight members of his own party if he is, in fact, serious about controlling spending. USA Todayleads with word that the Army National Guard now has a surplus of soldiers. It was only a few years ago that the National Guard was falling short of its recruitment goals, and so it increased bonuses, as well as relaxed its admission requirements, to attract new candidates. But that all seems to be a thing of the past now that the Guard has to cut back on its force since it has 366,880 soldiers, more than the 358,200 authorized by Congress. The LAT leads with a new economic forecast for California that says the state could run out of money in July, particularly considering that voters seem to be adamantly against a group of measures aimed at closing the budget hole. Over the next year, California could find itself $23 billion in the red.
The results of the stress tests were better than some had feared, and many were quick to say that they demonstrated how the industry is on the road to recovery. Others weren't so sure, saying that the government analyzed projected losses in the face of economic projections that aren't that far from reality and allowed banks to pressure officials into releasing favorable results. Treasury Secretary Timothy Geithner once again said he's confident banks will be able to turn to private sources for the extra capital. The one big exception appears to be auto-financing giant GMAC. The WP hears word that GMAC will receive a $7.5 billion infusion of taxpayer cash next week.
The banks are all either rushing to figure out how to raise more capital—they must hand in their plans to do so by June 8—or trying to determine whether they should be giving the TARP money back to the government as soon as possible. But they all seem to agree they'll try their hardest to avoid taking any more government money.
The WSJ warns it's possible the stress tests could unintentionally end up making it more difficult for consumers and businesses to get loans. By placing such a strong emphasis on capital, banks may be more tempted to hold on to what they have and further cut back on lending. Although some were quick to find vindication in the results, other banks continued to question their true value and the methodology that the government followed. In a piece inside, the WP highlights that banks did lots of arguing with government officials over the test results and some even managed to get some concessions that ended up making the results look a bit better for the industry.
In a front-page piece, USAT points out that among the programs that Obama wants to cut back or eliminate are five that could eventually get $500 million in federal stimulus money. Critics say it's much more difficult to eliminate a program once its funding has been increased.
The WSJ fronts word that Defense Secretary Robert Gates will be appointing Lt. Gen. David Rodriguez, a three-star general, to Kabul in an effort to boost military leadership in Afghanistan. While the Iraq effort has had both a four-star and a three-star general, Afghanistan only had one senior general, and many think that's no longer enough to win a war that is becoming more complicated every day. In an unusual move that is also seen as evidence of the importance that Afghanistan is receiving at the highest levels of the Pentagon, Chairman of the Joint Chiefs of Staff Adm. Mike Mullen ordered a task force to improve the Afghanistan strategy.
The NYT takes a look at the state of the Iraqi security forces and notes that while they have definitely improved over the last few years, they still suffer from some severe shortcomings that have raised concerns over whether they'll be ready to take over when American troops begin to withdraw in large numbers. Even though their numbers continue to increase, Iraqi soldiers and officers continue to depend on American troops for some basic functions. Now that Obama's plan "has set the clock ticking," the most important American military mission involves training Iraqi forces.
The NYT's Paul Krugman declares that whether the stress tests results should be seen as comforting depends on whether they are being looked at from the perspective of a banker or some other professional. Besides obvious problems with the methodology of the tests, Krugman says they finally showed how Obama's administration has decided to "muddle through the financial crisis, hoping that the banks can earn their way back to health." It very well might work, but it's important to note that so far the White House "has decided not to do anything dramatic to recapitalize banks." Ultimately, though, those of us who aren't bankers "should be very, very afraid" because there are suggestions that "Wall Street insiders are taking the mildness of bank policy so far as a sign that they'll soon be able to go back to playing the same games as before."