Friday, April 17, 2009
Stress Test On, Crisis Over
Anybody else out there remember what our government leaders were doing one year ago next month, when the financial system was heading into free-fall after a decade of profligate home-lending?
They were holding hearings about oil prices.
Specifically, they were investigating the role of hedge funds—who else?—in the price spike that was saw oil hit an unsustainable, demand-choking level of $150 a barrel (see “Congress Blames the Hedge Funds—Yeah, That’s It!” from May 23, 2008).
Of course, Congress never actually did anything about it, because oil prices almost immediately began collapsing, what with the financial crisis and all.
But they sure held hearings.
Now, if Congress had wanted to do something serious about reducing our dependence on oil, it might have thought about doing something before a crisis began: but that is not the way democracy works.
Democracy responds to the front page of the newspaper—or, the latest viral YouTube video—which is in itself a response to whatever is currently a problem, not what might be a problem years down the road.
So as we ponder the collective holding-of-breath over the impending results of the so-called “Stress Test,” by which our nation’s banks are being subjected to all manner of what-if scenarios by the same regulators who never bothered to do this stuff when times were good, it occurs to us that if the government has decided it is time to conduct a serious analysis of the ability of our nation’s banking system to withstand an economic tsunami, well, then, the tsunami must already be behind us.
Indeed, listening to Jamie Dimon and his team on the JP Morgan earnings call yesterday, the outlook sounds a whole lot better than it did last year around this time, back when Congress was too busy holding hearings on the price of oil, naked short-selling, atonal music and whatever else it could think to blame on hedge funds, to worry about the kind of financial crisis our regulators are just now getting around to stress-testing.
Putting it into a formula, we derive the following:
Improving Fundamental Outlook + Severe Government Reaction = Crisis Over.
And we think you can take that to the bank.
Meantime, the Top Ten Questions for Warren Buffett have been selected, and will be revealed here on Monday.
I Am Not Making This Up
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Posted by Jeff Matthews at 8:06 AM