Zombie Banks

The stress tests were not a set of rigorous examinations at all, but a modeling exercise using the banks' own valuations of their assets. Why is the Fed low-balling the problem? The hope is that by keeping the banks afloat for a few more months, and trying to entice private capital back to the table, the recovery in other parts of the economy will spill over onto the banks. But the greater likelihood is that weakened banks will continue dragging down the rest of the economy.

Barack Obama's Special Olympics line on Leno got all the headlines, but the night's real money quote was his saying that his administration plans to "set up a securitized market for student loans and auto loans outside of the banking system" in order to "get credit flowing again." Excuse me, but isn't that what the $700 billion bank bailout was supposed to do? So what happened? Instead of lending the billions we gave them, Obama explained to Leno, the bailed out banks "are keeping it in the bank because their balance sheets had gotten so bad." Imagine that: zombie banks using taxpayer money to stay afloat. If the White House really didn't see that one coming, it's no wonder the ferocity of the public's reaction to the AIG bonuses caught them so off-guard.

All of Obama's good work will be for naught if his team doesn't get the banking system functioning again.

Republican Sen. Lindsey Graham of South Carolina stunned political observers on Sunday when he said that "the idea of nationalizing banks" must be kep...

Sooner or later, the administration will have to level with the people, and then make the case for a financial rescue package the magnitude of which will make the stimulus package look like pocket change.

The Obama administration has made its first serious misstep. No, it wasn't the wooing of ingrate Republicans, or the dining with clueless reactionary pundits. It is much more significant.

When Galileo became convinced of the truth about how the solar system works, he didn't decide to just split the difference with the Pope so he could get a few nice editorials about "common ground" and "working together." Obama needs to stop trying to appease the bipartisanship fetishists. READ MORE Why is Obama Reluctant to Kill the Zombie Banks Threatening Our Economy? The plan laid out -- or, more accurately, sketched out -- by Tim Geithner makes it very clear that he is on the wrong side of the issue, more worried about the banking industry than the American people. Like Hank Paulson before him, Geithner appears more concerned about saving particular banks than saving the banking system. READ MORE

What will the Obama administration do with the banks that are now on life support? The decision -- with new announcements rumored for next week -- is critical to any recovery plan.