1. Good news overall. As predicted, the certainty that has come from the stress test has overridden the fact that a fair amount of the detail consists of bad news. The markets are continuing to rally. Known knowns prove to be a good thing and known unknowns to be terrible. (Apologies Don Rumsfeld.)
2. This will not be the end of the crisis, in that the housing market is unlikely to rebound as quickly as people might hope in this current flush of optimism. There will be further losses next year and it will take much longer than that to get back to where we started. Nevertheless, the effectiveness of this exercise makes a strong case for how to deal with future problems of over-leveraging: just do it again! I see no reason why this kind of stress testing can't become a standard part of the government's regulatory oversight function, perhaps an annual exercise at the time of year end results?
3. The banking crisis is not the sum of the crisis, even if it was the reason the bubble burst. Restoring stability in the financial markets will go a long way towards reviving the American economy. And, if it's matched by regulatory changes, it should help to avert a repeat performance. But profound problems remain in terms of economic fundamentals. Poor balance of payments, debt-fuelled consumption, deficits and national debt will continue to be ticking time bombs, and hold out the possibility in the medium term of painful tax rises or crippling inflation. The question now is to find a suitable way of managing these issues without cutting back government stimulus to the economy and shooting the economy into depression. The first two steps for this programme are obvious: seriously shrink military spending and produce a major overhaul of the benefits system.
So, time for a glass of champagne, but save the rest of the bottle for later.
Think Of the Children
53 minutes ago
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