Now that the results of the stress test are officially out, I suppose I should comment on them. My concern had been that the tests would lead to one of two undesirable outcomes — that either they’d be too rosy and pronounce everyone healthy, leading markets to disregard them, or they’d reveal a few particularly troubled institutions, which would then be hammered by markets and driven to an unprepared government for more aid. In fact, the government managed to pull off a neat trick, indicating that some banks do need quite a bit more of an equity buffer, but not spooking markets in admitting this.

I think one has to give the administration some credit for this, based on the strategy of leaks and pre-release discussions with banks. It also helps, of course, that the better than expected results of the tests are being greeted credibly by markets and most economists. The administration has taken some flack for choosing adverse scenario conditions that are pretty close to reality, but having the specific test procedures out there in public has defused the argument that the results are a whitewash, and the administration has been further bolstered by complementary findings on bank needs from the IMF and other sources.

But I don’t think one can stress too much the importance of circumstances in affecting public reception of policy choices. Back when the stress test idea was initially being rolled out, the economy was in freefall, and most economic variables were deteriorating at an accelerating pace. Just as important, the market was headed downward, and fast. The market fell over 20% from late January to early March. This primarily reflected its absorption of the steady stream of bad economic news, but it was set against regular pronouncements on the banking system by Tim Geithner and other officials. The associative effect was deadly.

Fast forward two months, and the economic picture looks far less bleak. And crucially, markets are up some 30% off their lows. Policy certainly hasn’t changed by all that much since February, and it’s not any more clear that the administration’s banking strategy will work, but suddenly Geithner is getting a standing O from much of the commentariat (permabears excluded).

The point to take away is that these guys were never fiends or savants; they were simply public officials trying very hard to make good policy in an awful situation given some pretty significant constraints. I’m glad the release of the results has gone over pretty well, since I felt that Geithner and the administration have taken a lot of undeserved flak, but my view of their policy choices remains much the same as it has been for some time — that they weren’t obviously superior to other alternatives, but they were reasonable given the circumstances.