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The Great Stock Market Crash of Ought Eight September 30, 2008

Posted by sliceof in Economics.
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Today, the House of Representatives voted against the Bailout Bill for the banks.  Although it was Bush who introduced the bill, it was mainly Republicans that shot it down.

Today, the Dow Jones Index fell 770 points.   The biggest fall of the Dow Jones in one day…even bigger than after September 11th, 2001.

Today is the start of the new Depression.

Or not…

It is probable that the House will eventually pass a bill to buy the junk mortgages and put confidence back into the investment market.  If and when the bailout is agreed upon, the market will make its way back up.

This delay may have been a good thing.  The price of stock is going to crash down.  Banks with bad debt, poor structure and  inefficient business models are being sold off or are dying out (Wachovia and the like).   The market is going to shed its fat quick and hit equilibrium hard.  So, how is this a good thing?

This may be a good thing because the economy will stabilize.  There won’t be a long, drawn out back and forth decline.  Instead of inefficient companies scurrying to eat at the Bailout buffet and folding when freebies are gone, these failed corporations will fold or be sold off to better, fitter banks.  Stock prices are going to be EXTREMELY low and with the security of the Federal Government backing up the banks, there are going to be some amazing deals, and the market will start to climb up again.  AND Investors who stayed out of the mortgage mess are going to see huge returns when they start being up the cheap stocks.

The unscrupulous and irresponsible will fall and those who played it safe will rise.  It will be Herbert Spenser’s “survival of the fittest” playing out in the financial sector…the way the free market is supposed to be.