Welcome back!
Just about all the experts have been wrong. I’ve been following some of them even way before I began online trading and online options trading. None of them called this.
A very few did say that they thought that the sub prime lending would have consequences, but they did not forecast in what manner. They mostly said that it would have an effect on a few banks, but never did they say the entire system would melt down.
It’s ironic that almost twenty years ago, in the late 1980’s, that there were a slew of books and financial gurus who predicted the next Black Tuesday and Great Depression, and of course when that didn’t happen, they fell out of favor.
The Panic of 1987, which drove stocks down then over 500 points, was an enormous percentage point drop, but now drops like that are happening daily.
Of course, the banking and finance system has not quite melted down. Nobody really knows how dire it is.
Yesterday, Hank Paulson, forced some of the largest banks to sell stock to the federal government. Some of the banks objected, like Wells Fargo, as they were not in danger, had a strong balance sheet, and did not want the federal government owning such a large voting block of stock. There were clearly some shotgun weddings.
None of this is restoring confidence. Bad news continues to flow in across the world. Yesterday the bad news came from Switzerland. Both big investment banks there, Credit Suisse and USB, have been nationalized.
This is Switzerland — home of the Swiss bank! These banks survived the Great Depression and World War II. Now they’ve been done in by a bunch of lower income Americans and the banks and the politicians that caused this mess.
I’m not sure what can be done. If trading is halted on the exchanges, it would probably only be a pause in the massacre.
If the government got out of the way, the markets would totally crumble, which may happen anyway. If that happens, real wealth will be lost, but others will step in to buy. There is money out there — waiting.
Today and tomorrow will be interesting days, to say the least. If the market goes below 8000, then we may see another rush to sell, people moving out of mutual funds and into cash, and people and institutions stashing the money in the mattress, so to speak.
Each day is something new. I wish it weren’t. Being my own online broker certainly presents me with some challenging times.