The hope is that the anxious investors looking out of their foxhole and roaring to go back on the hunt understand that it will take time to reconstruct the financial system because the one we had was pretty flawed and was always prone to boom and bust type events.
The other important thing that I think we should point out is that when you have too much regulation you don’t have rapid growth or economic expansion and there is no doubt that we are going to be overloaded with new regulations which might even choke the growth before its ready to rock and roll. So we might not get the economic bang we are all awaiting. For any economic expansion you need access to competitive (cheap) capital but the problem is, going forward the central banks will have to raise rates and the governments will have to raise taxes to fix their balance sheet which is pretty much like throwing a spanner into a wheel. Something to think about!
And what about the financial services sector. Could this be another options ?
The argument is that the US government will probably not to get into action with a “final” plan for the banking sector because it don’t have a good estimate as yet as to how bad things could get, and coming up with a “final” plan that has to be revised subsequently can’t be good for confidence. So, the idea could be to wait until it is fairly sure that the recession has bottomed out, with the attendant impact on the banks’ balance sheets, and then let the most problematic banks go bust. Jamie Dimon is suggesting that they might be asked to take over some banks. So who knows? The leaked report is suggesting that around 10 banks out of 19 might need to raise additional capital including of Citibank, Bank of America, Wells Fargo and Morgan Stanley among others but let’s see what the reality is going be. I suspect that the Govt. will probably strongly urge (meaning force but they won’t admit) the problematic banks to merge with or be acquired by stronger bank. I think this is what Jamie Dimon is suggesting (if one was to read between the lines). The criticism of stress testing is growing from all the corners especially from the ex regulators who were at the forefront during the S&L crisis. I think market has pretty much decided to go positive on bad or good data. It doesn’t matter that’s how it looks like. And the word for that is “everything is priced in” so no worries. A very interesting way of saying ” Guys we couldn’t careless, we just want to make quick money”. Which is ok I guess. Look at Bank of America and AIG stocks for example both these companies are beaten down with losses mounting but their stocks are up. That’s why I am convinced that market has abandon common sense or may be you don’t need common sense?