Crisis of Confidence Overcome

It was another good day for stocks, as expected. Surprisingly good earnings from Alcoa (NYSE:AA), along with better than expected initial jobless claims gave investors the confidence to bid stock prices higher.

We're seeing a fundamental condition for economic recovery play out - confidence. I've said it before - an economic system is, at its heart, a belief system. For there to be growth, Americans must believe the U.S. dollar has value, we must be confident that contracts will be honored, we must believe our money is safe in banks, we cannot doubt that we will have jobs to provide for our families.

The financial crisis shook our faith in the U.S. banking system. Rumors of insolvency at Bear Stearns sparked a run on the investment bank that made the rumors real. The same thing happened at Lehman, but the shockwaves echoed around the world. The financial crisis was a crisis of confidence.

Now, that's not to say that the sudden skepticism of our banks was misplaced. Using obscene leverage, derivative alchemy and making some really dumb decisions, America's banks pushed themselves right to the brink. And in some cases, right over the cliff...

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