Oh to be trading tulips again…at least Wall St. would smell sweeter….

As with the housing bubble? Home prices remain too high, still, you realize.

* * *

“Panic starts to trickle down”

I wouldn't worry too much about that, because most should be too grown-up to succumb to it. “Concern,” yes, and it can be exploited. In fact, This Is War! [tm] and I would be disappointed if Obama's current feeble and pathetic ad were the last or only attempt by his campaign to exploit this. He really can score points against John-Boy (among other than stupid people) if he ditches the Bush Clone lie and ties “McCain” to “Republicans” and contemporary Republican economic policy (ignoring problems or worse, enabling them by being in bed with the offenders).

So far, Obama is struggling. It Feels Good to know he wants a bold Great Lakes cleanup program costing multiple billions of dollars (we've actually already made a great deal of progress with the Great Lakes environment), but where is he going to find the money for this latest grand goodie promise? Isn't he going to have to spend a lot of money instead on more bank bailouts as well as bailing out the Big Three? (If he takes control of any bank and the bank's shares go down, the takeover compels federal compensation to shareholders. Is he prepared for that?)

Besides, grown-ups aren't averse to even a Japanese-style or US-repetitive deflationary depression as it would be neither surprising nor out of order here.

If record foreclosures weren't bad enough, we now have massive damage from major hurricanes in four states, and so have to help countless numbers of homeless people. Combine that with record deficits, and you get a perfect storm situation. But maybe I'm being too gloomy about the forecast.

Simply put, the Fed is now out of money and there is emergency debt issuance to try and shore it up. Meanwhile, there is also growing evidence that demand for our debt is being shunned, either because other central banks/investment funds don't want it or they are unable to purchase it.

This is leading to failure of the central bank (actually it's becoming a global problem) in faciilitating bank transactions. Banks are starting to refuse to lend except at very high prices, and if Wamu goes down or similar company they are doubting whether there is enough money left to keep things running.

Meanwhile, “good as cash” money markets are being frozen again leading to people pulling liquidity.

Oil and gold skyrocketed because while we are in a highly deflationary environment, now the central banks are going to have to decide whether to let everything fall apart or just start printing money and causing massive inflation.

I would say that this is not a mere panic because literally global liquidity is almost gone and that will ruin countless businesses. That said I don't think that it's all going to happen in the next month or even year, so so short term declines are from a panicked state. Of course the stock market is still overvalued by about 10-15% if you use reasonable forward earnings estimates…the real panic is more in credit markets than stocks.

http://dealbook.blogs.nytimes.com/2008/09/17/wa…

So much selling going on. I wonder what's going to happen when we do come out of this. I mean, right now Bank of America is a complete superbank and who knows, they may decide to buy out others as the chips fall? Is it possible that only a few banks or insurance agencies could end up controlling the entire financial sector?

I'm certainly no expert when it comes to finances, but I can tell when Panic starts to trickle down. And when it does people really start to get angry. People here in the Southeast were none too happy to see the price of gas rise 60 cents overnight last week after Ike (some stations 1 block from each other differed by a quarter). Perhaps that was for other reasons, but when this does trickle down if it hasn't already, then we're really in trouble.

Elrod makes an excellent point re: panic. It is fascinating how fear, the herd instinct, and fundamental irrationality grips markets. I wonder whether “panic” is still not an excellent term to describe such events.

I recall a day . . . I think in 1992 . . . when the market tanked suddenly overnight, and the news anchor excitedly noted that there were even sweeping sell-offs of stock in IBM, Microsoft etc.

This is chiefly memorable to me as I was a student in a pub at the time . . . watching this on the telly after six or seven pints. Even so, I wished I had the money to buy the shares in IBM and Microsoft that were going at firesale prices by irrational investors.

When inebriated students are more rational investors than Wall Street brokers, you know you are in a panic. As this was before Windows 95 . . . maybe before Windows 3.1 . . . I would have been set for life had I the money to follow my inebriated impulse.

Alas, all I had was enough for a few more pints.
Still, what more do you need when you're a student?