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Amid Rush to Repay Rescue Funds, Banks Face New Scrutiny

Big U.S. banks passed key government "stress tests" and are now working to repay federal rescue funds. Does that mean they're out of the woods and the government rescue plan worked? Financial experts offer insight.

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    So the banks are passing stress tests and repaying the government. Does that mean they're out of the woods and the government rescue plan worked?

    Here to take an initial pass at those questions are William Cohan, author of "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street." He's a former Wall Street banker.

    And Peter Wallison, a former general counsel of the Treasury Department in the Reagan administration, he's now a fellow at the American Enterprise Institute.

    Welcome to you both.

    William Cohan, today Timothy Geithner said that repayments are, as he put it, an encouraging sign of financial repair. Do you agree with him?

    WILLIAM COHAN, author, "House of Cards": Well, it's hard to complain, Gwen, about returning back to the taxpayers, you know, whatever it is, the $30 billion, $40 billion, $50 billion, $60 billion that they're returning and that they owe to us, and that's a good thing. It's very hard to complain about that.

    On the other hand, you have to ask yourself, why in the world, when we knew that the system was so badly broken six months ago, why are we in a mad rush to restore exactly the same system as quickly as possible?


    Peter Wallison, is that what is happening here as we see these loans repaid, the same old system still in place?

  • PETER WALLISON, American Enterprise Institute:

    Well, yes. The same system is in place, but there has been one major change, and that is the stress tests, which turned out to show that the banks were probably not in as bad financial condition as most of the reports had said.

    And since banking is very much a question of confidence, it now looks as though the banking system is going to be able to return to something closer to normal. And under those circumstances, it's a good thing for the government to get out.