Chairman of the FDIC wants to be diplomatic on proposed bank regulatory reform and keep from getting fired:

The New York Post reports that insiders in the FDIC consider Geithner’s Bank stress tests a pointless exercise, aimed at the naive general public:

“The FDIC’s basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.”

“Many high-profile analysts already are voicing the concern that losses will pile up in areas most of Wall Street hasn’t watched closely, such as residential and commercial loans that are currently on banks’ balance sheets.”

The article also refers to a “growing rift” between the Treasury Department and the FDIC.  We doubt that rift really exists…Sheila Bair is clearly in cahoots with Timid Tim to smoke screen the banks’ true condition.

Andrew Ross Sorkin in the NYT says (we added the emphasis):

“…the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.

It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets.

These loans…are, for example, “nonrecourse,” which means that if an investor loses money, he owes taxpayers nothing. It’s the closest thing to risk-free investing — with leverage! — around.

So where did the risk go this time?

To the F.D.I.C., and ultimately, to us taxpayers.”

So if there is no risk of loss, then why won’t private investors buy the assets without FDIC gaurantee? The FDIC is effectively answering that private investors perceive risk where there is none.  To substantiate their claim, they have asked their accountants  to carefully evaluate these non-existent risks.

” “We project no losses,” Sheila Bair, the chairwoman, told [Sorkin] in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said.”

Sounds like famous last words to us…