In the past two days, the days since the special election in Massachusetts, the Obama administration has become substantially more focused with fighting big banks.  As a political move, it is sound to attack the entities that almost everyone blames for the recession we are in.  As an economic move, however, there is much more subtlety to the decision to push not only a tax on banks that owe the government money but also to enact the Volcker Rule, something similar to a (significantly) watered down, modern Glass-Steagal.  Many other big financial websites are blasting the proposal for causing the Dow to dive down 200 points and banking stocks to dive over 5 percent.  But they dont realize, that what may seem to be good for Wall Street in the short term, isnt always truly good for Wall Street, and it definetely isn’t good for Main Street.

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Today Goldman Sachs CEO made it clear that the concept of “too big to fail” truly exists, and that the government would undoubtedly bail out the banking giant if problems started to arise.  The hearing of major financial CEO’s dispelled any notion that the government would in fact not do anything about the possibility of another massive bank failure.  While many more Main Street minded consumers and even investors may see trouble with the notion that some banks are “too big to fail”, under a properly regulated financial sector it may have some necessary benefits.  Perhaps the most troubling aspect of the notion is that the bank would be free to do whatever it wants and get away with it.  After all, it was similar reassurances from the Bush administration that gave the banks the security to give out plenty of high-risk loans.  But these concerns directly tie with the necessity of stability in the financial sector: an interest that is actually furthered by the “too big to fail” concept.  If the government properly regulated the sector and prevented high risk loans then the banks would in fact have survived the financial crisis essentially unscathed.

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Today, as the 2009 fiscal year comes to a close, we take a quick look back and a quick look ahead.  Looking back, we see that on January 3rd of 2009, we predicted that the Dow would close the year at 11,000 dollars a share.  Today, the Dow ended the year above 10,500 and made our prediction one of the closest of the year.  Last year in that 2009 outlook we discussed how the stability of the housing industry and the recovery of the banking industry would be the catalysts behind an astounding recovery.  The housing sector has remarkably stabilized and recovered while the banking industry has seen massively robust positive changes since the start of 2009.  As we have said many times before, the one think lacking from the equation is jobs.  Unemployment is thus the pefect segue to our quick 2010 outlook.  2010 will be the year of recovery and will see the strongest recovery since that following the Great Depression.  Unemployment has ticked downward to 10 percent and the US will, in all likelyhood, finally witness job growth this month.  But unemployment numbers will still be sky high and they will only turn around with a substantive reversal in consumer confidence.  That will come, in our opinion near the 3rd month of 2010.  At that point unemployment will quickly decrease and by the end of 2010 Fiscal Frenzy predicts unemployment rates of between 6.8-7.2 percent.  While other indicators will likely slow in recovery, the job growth the US will witness this coming year will lead the Dow up even higher.  In that regard, Fiscal Frenzy sees the Dow ending 2010 at 13,000-13,500 due to very strong recovery in the first half of 2010 followed by a market flatlining in the second half of 2010.  Nonetheless, look for a great year for investors ahead.

Another Top Ten of 2009 as we now look at the top ten Fiscal Frenzy articles of 2009:

10) Volatility and Market Stabilization

9) The Economic Benefits of Higher Income Taxes on the Rich

8 ) A Look at the Future Benefits of the Stimulus

7) Polling and Economic Fortunes

6) Assessing the Impact of an Auto Industry Bailout

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