What we didn’t do

Today we found out that the European stress tests were not as comprehensive as they might have been and the markets have decided to sell risk assets. Of course I don't think anyone is actually surprised that the tests, designed by a group that was trying to provide reassurance to investors, was not the most stressful stress test. However, the revelation provides an opportunity to short some stocks and make some profit from the volatility.

One would think that any concerns about the stress tests would have been offset by the increasing likelihood that the mid-term elections are going to lead to a deadlock in congress. It's pretty clear that Wall Street and probably Main Street are not convinced that the Government really has any good ideas, and having them debate a lot and produce nothing of substance is the preferred status quo.

It is sad how ineffective our leadership has become, not because they are not bright people, but because they are too influenced by unrealistic fringe groups that aren't pragmatic enough to be successful. If you want to have cleaner energy we should have moved, on an intermediate basis, into natural gas. It is plentiful, burns cleaner than oil and would help the balance of payments. It isn't good enough to satisfy the environ-nuts who want to go right to a solution that can't be implemented for many years, leaving us with an oil based economy.

If you want to create jobs, you needed to create real jobs by improving the infrastructure and providing credits to convert to friendlier energy sources. It would also help a lot to even the playing field with foreign manufacturers by reforming the way we tax business, relieving them of health insurance and pension concerns and making sure everyone selling product in this country is paying a comparable share of the costs of these programs.

If you want to help housing, well it may not be helpable, but if you incentivized banks to reduce current mortgage burdens in exchange for a future share in the sales price it might have avoided a lot of foreclosures.

Instead, the visionaries of this crisis came up with what are past described as multiple level derivative actions that hopefully would improve the situation. We increased the money supply and drove interest rates down hoping that it would ease credit opportunities and make mortgages more affordable. However, in a situation with so much lost wealth, the cash was used by banks and corporations to increase their balance sheet and not to increase the amount loaned out and not to increase investment and not to lower mortgage burdens,

In fact there was so much cash being hoarded that we have a possible bubble in treasuries.

If there is a lesson learned it should be the following. If you want a to happen do the most direct possible thing to get there. If b is a direct cause of a, do b. Once you decide that e influences d and c which then influence b which influences a, the logic may be good but the links are subject to unexpected consequences.