The U.S. Stock Market is in peril...again. The fear is real and the consequences are scary. We now know exactly how people felt prior to the Great Depression or the Crash of 1988. In the middle of the Great Depression, Congress blamed the risky speculation of commercial banks with using depositor's funds . Congress then passed the Glass-Steagall Act to regulate banks but with pressuring lobbyists, the regulation was repealed in 1999. As banks began owning brokerage firms and providing investment opportunities for depositors after the repeal of the Glass-Steagall Act, the speculation evolved into using funding illegally, creating fraud, or persisting in extremely risky speculation (CQ researcher 10-01-08 Financial Crisis "Did the lax regulationcause a credit meltdown?" by Kenneth Jost).
Mortgage firms flourished from this deregulation, and mortgage companies such as JP Morgan, AIG, and WaMu pressured people into taking the risky speculation on buying homes way out of their paying capabilites and selling with the intent to gain profit if the housing market went up. Due to the large number of people buying mortgages this way, the Stock of the company skyrocketed and more people began pouring money in to the Stock Market; investing uncontrollably in each company. But the housing market didn't shoot up as CEO's and everyone wanted who invested billions of dollars into the companies and the Stock Market. The housing market went down; slowly at first but the results impacted everyone like a meteor. For example, if the market went down "1%" and people had invested let's say $2 billion, then $20 million dollars was lost. But no one can pay this money.
The money is of loans, and banks oversaw this loss and calculated it into an asset of their banks. So the numbers say $20 million, but theres nothing there; no money at all. The bank eventually becomes hollowed out. This ripples into the Stock Market as people withdraw their money and sell stock like mad! Money pours out of the Stock Market now and what happens? You guessed it, the Market crashes. All coursing over more than a decade of unethical investments, fraud, and risk.
These banks and new companies that branched from the idea of quick money and bad ethics are the source for the near crash of the stock market. Regulation is essential more then ever as this problem serves as the balance between life and death of the U.S. economy. Education, gas, jobs, everything is wired together with the Stock Market.
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8 comments:
It seems to me that now is the time to invest. The stocks are down, but my fear is that I am endangering myself for losing more money. There are banks being closed every where and I do not want to be left penniless living on the streets. Is it possible that the stock market will fall anymore?
I'm sure the stock market will fall more if the risky speculators and fraudulent companies continue to depreciate the economy through creating a large debt with persuading consumers to purchase their mortgages and stating the economy is booming and now is the time to invest. Banks are losing money with this problem therefore I believe you would lose your money as well.
I think that the stock market will fall even further. It seems like this is the time to invest because the stocks are so low, but if one does, it is likely that there is a great risk of losing money...I think that even if the House did pass the bail out plan that it wouldn't really help all that much, mainly because big companies are still going to try and get people who cant afford loans and houses to get them
It is most certain that the bail out of $700 billion would prove not only radical and completely a violation of an open market system, but it would only help the large companies who profited from their fraud, risk, and creation of debt. Things would just go back to the way it used to have been, and the Stock Market would inevitably crash. The Market is fluctuating greatly, but the recent near crash would stray any enthusiastic investor away.
I really enjoyed reading this blog. There was a lot of information that I was not informed on. Thanks for giving such a good background on why we are in the situation we are in from the begining.
I think that with stocks as low as they are, now is potentially a good time to invest. However, those investing in this risky time should have enough money to be able to survive the loss that could quite possibly result in investing. (ie, don't throw your life savings in) They should also be knowledgeable about the market they are investing in and be able to ride the situation out, since things will probably get worse before they get better. Nice blog, the historical information was interesting.
One thing I find scarier is how few people our age seem to realize how bad this actually is...
I mean, I've talked to quite a few people who haven't even heard of the crash. One person overheard me discussing the economy with a friend and asked me if I was talking about the 1930's.
We need to fix this for future generations, but for that to work the future generations need to understand what exactly is going on.
Isn't it true that every time that we have an election here in the U.S. the stocks go down. Isn't it possible that the stocks will go back up right after the new president is elected? I mean it can't be down forever right?
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