It is difficult not to be sympathetic to the observation that making policy (or managing an institution) is more difficult that usual when the consequences of decisions play out in so many unpredictable ways. In uncertain times, outcomes are harder to predict, so caution is the order of the day, and any undertaking must begin with an acknowledgement that success or failure will depend or more than just the ingenuity of the strategy or the efficacy of its execution.
That said, we are witnessing some decisions that appear to have been made with no consideration whatsover of their consequences. Not the second order effects, or the knock on consequences, but the basic cause and effect issues. I'm not sure if the Obama administration's stress testing of the major TARP recipients had its genesis in a speechwriter's desire for a good soundbite, a business as usual misunderstanding several layers down in the regulatory bureaucracy or a profound misread of just how interested a number of vocal constituencies would be in the outcome. But it appears to have been set in motion with no clear sense of what the outcome would be, almost as though the government is simply curious about the financial condition of the financial services sector.
These guys now appear to be floundering like students who haven't done any of the work and the mid-term is looming. Getting sick and rescheduling has already pushed back the deadline. But sooner or later, the results of setting the process in motion are going to come out. One way or the other.
And these guys have put themselves in the worst of all possible worlds. To the extent that institutions show healthy, the test itself will be damned as insufficiently rigorous. To the extent that weaker institutions are highlighted, the grounds are laid for an immediate culling of the herd. Perhaps that is a good thing, since it will facilitate the piecemeal dismantling of the financial services sector, which is necessary, but would be hard in a single pass. However, is difficult to believe that the stress tests are a blow in an ongoing campaign to dismantle the financial services sector, given the time, effort and treasure that is going into propping it up.
It's one thing to take a calculated risk and fail. It's quite another to make a move with no appreciation, not even of the risks involved, but of the dynamic you're set in motion. The ongoing saga of the stress tests appear to be a good example of the latter.
Wednesday: FOMC Announcement, CPI
3 hours ago