Afternoon Must-Read: Ashok Rao: Stress-Testing Stress Test

Ashok Rao: Stress-Testing Stress Test: “Geithner certainly has history on his side…

…when noting that far more benign banking crises have caused far more pain when confidence is missing. And, indeed, expectations are everything – putting cash in the window makes depositors less worried about taking it out now. The really damning part of Stress Test is its total disregard for monetary policy. In the sprawling seven hundred pages, there wasn’t even one fully devoted to understanding the importance of the Fed…. Geithner admits that Obama almost always heeded his advice, which makes Geithner’s own apathy towards the economics, not just finance, of the Fed that much more astonishing. The long unfilled vacancies and a bias towards bubble-bursters rather than economy-growers really redoubles the view that the Obama administration neither knew nor cared about monetary policy beyond as an immediate bandaid for Wall Street. I’m not sure what the lesson here is, but I think it militates in favor of more academic expertise within high politics…. The Federal Reserve’s goal goes beyond financial stability, and no one in the administration seemed to realize this…. Geithner is unable to provide a theoretical justification behind his policy actio…