The severity of the state of our credit markets, should be a wake up call for anyone who has not yet made the time to get educated on what’s been going on in our financial markets, today and over the last 20 years.
Understanding the speculation that led to the Great Depression, the repeal of the Glass Steagall Act and how less regulation has impacted the banking industry, the global impacts of our financial system, should all be considered as we head into uncharted territory and try to figure out how to move forward.
I don’t have the answer of what exactly will fix this mess, but I do know that a well thought out plan needs to be crafted, that includes restoring liquidity to our credit markets, decreasing our dependence on credit and restoring common sense rules to the process of issuing credit to consumers. It should include many other items, including accountability, that I will not go into at this time.
Today we lost $1.1 trillion dollars in net worth as a result of the market’s 778 point drop, which represented a 7% drop and the biggest point drop ever! In case you are wondering how this compares to previous drops, here is a list of historic stock market collapses:
12.8%: Drop in the Dow Jones Industrial Average (DJIA) on Black Tuesday (Oct. 29, 1929)
22.6%: 508 points Largest one-day percentage drop in stock market history (Black Monday, Oct. 19, 1987)
4.4%: 504 point drop in the DJIA on Sept. 15, 2008
(If the markets continue to drop, there are circuit breakers that were introduced after the crash in October 1987 and then further revised to take into account the increased volume and index levels. There are trigger levels or circuit breakers for a one day decline of 10%, 20% and 30% of the DJIA. These levels are calculated at the beginning of each calendar quarter using the average closing value of the DJIA for the previous month to establish specific point values for each quarter.)
For more information on this, check out the SEC’s website.
Unfortunately this credit crisis and the fall in the financial markets impacts all of us directly, through our 401k, IRA, money markets, annuities and just as importantly being unable to obtain access to home loans, business loans etc.
We need to move beyond partisan labels and the finger pointing, because the impacts, in the end, will be felt by everyone.
Disclaimer: All information in this post is subject to change without notice and is an opinion, is not guaranteed, may be time sensitive, as well as based on information collected from many sources which are not guaranteed to be reliable.
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Ana- We are a strong and resiliant people. We will rise again. I do agree that it behooves us all to learn economics but we must also look at facts, not what the press and media and Congress are telling us.
It is NOT lack of regulation that brought this mess about. In fact, it was regulation and lack of oversight of that regulation that brought us to where we are today.
In fact, if the market to market valuation system of regulation on the banks was in effect, which it was not, in 1929, all the banks then would have failed. You see, only one bank failed during the depression. If this market to market evaluation were in effect, (regulation), back in 1929, we would still be in the great depression.
When Wall Street crashed in 1929- well, that did not cause the great depression.
It was regulation and bad decisions of Hoover and Roosevelt.
Read, The Forgotten Man: A New History Of The Great Depression by Amity Shlaes. A great insight to this.
During the S& L crisis, if the same regulations we have today were in effect back then, well, we would have had a second great depression and the commercial banks would have all failed. That did not happen because we have free markets. Instead of a great depression we had a recession.
I was just watching some congressional hearing back in 2004 where Freddie Mac and Fannie Mae were swearing under oath as they were cooking the books that their oversights were in order. That has nothing to do with regulation, that has to do with corruption.
The heavy strong arm regulatory practices of Congress putting pressure on the banks to loan money to those who could not pay it back through the Congress's Redevelopment projects, RSEs, were fought by the banks. The banks knew this would be bad paper, but Congress threatened them and forced them to partipate through this horrible regulation.
This bail out plan does not need to happen if we make our dollar stronger. That needs to be the priority, not bailouts. Capitalism works, free markets work themselves out, as long as government doesn't start messing with it. Katerina