Stress Tests
System: a group of interacting or interrelated entities that form a unified whole.
Over the past four years, and only a few years after our banking and financial system underwent their own stress tests, our democratic political system - our democracy - underwent its most extensive stress test since the Civil War, culminating in a violent coup attempt against our government initiated by the outgoing President himself. While our system ultimately “held”, it has become clear to many that there are weak points, broken parts, temporary patches, inappropriate applications, bad operators, and the like. Some of this is due to poor original design, some due to failure to innovate and improve along the way, some due to neglect (including intentional neglect), and some due to sabotage in the form of outright attacks on the system, both from within and without.
As if this stress test was not enough, over the past year, our healthcare, products distribution, employment, education, social, and other major systems have undergone their own stress tests from the Covid-19 pandemic. Yet again, we are learning that weaknesses are rampant throughout these large-scale systems.
And now, over the past week, Winter Storm Uri delivered a wallop of a stress test to much of the central part of the continent, but especially to Texas, as Texans learned that their iconoclastic and independent electric power grid is currently unable to stand up to the multi-day statewide freezes that occur every so often. Millions of households and businesses lost power, heat, and water.
I am a big believer in systems. Systems allow disparate and even unrelated entities to work together toward meeting goals and producing intended results. But because systems, especially large ones, are complex, they are also vulnerable. Systems can be impaired or even destroyed if individual components are damaged, or links between system components are cut.
Stress tests, therefore, are unique opportunities to closely observe our systems, and render objective judgments about where vulnerabilities lie and what corrective actions need to be taken. Stress tests, especially unplanned ones, are just that, stressful, but they should not ever be allowed to go to waste.
Our country is now entering a new period where we have the opportunity to report fully on all of these recent valuable stress tests, produce cogent interpretations and recommendations, and apply reasonable and reliable corrective measures. All reasonable people of good will should fully support the very valuable insights that stress tests provide, and should participate through our democratic system in encouraging and supporting economical system enhancements.
In the meantime, I, like many of our Texas clients, will be working on upgrading my own home’s water, electric, and heating systems. I certainly do not want to allow the past week to go to waste - and risk the same problems happening again…
Leonard Golub, CFA
Fiduciary Financial Advisor