The immediate problem is the 'subprime' (i.e., high-risk) mortgage meltdown in the US. Lots of financial institutions piled into them during the housing boom, but no-one knows exactly who is most exposed to this risk. As a result, no-one is willing to lend anything to anyone, until people figure out just who really is in trouble. And investors are bailing out of companies that might be vulnerable.

The central banks - which have learned their lesson from 1929 - are intervening in the market by acting as the 'lender of last resort'. It should be noted that this is not free money for investors, they are *loans*, at relatively high rates of interest. They're also implementing measures that will make it easier to borrow in the market (such as modifying collateral rules). This part of the adjustment should take a couple of weeks.

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Originally posted by Stephen Gordon:
OTOH, no-one has the loose change (aka 'liquidity') to buy up all those cheap stocks...

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I guess that's because potential lenders are afraid to lend money to buy them, right?

I'm not sure what to make of this, but I don't have a good feeling about it. At any rate, I'm glad my job is fairly recession resistant.

[ 16 August 2007: Message edited by: Agent 204 ]

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The White House declined to comment on the sharp moves in financial markets, and stuck to its view that the U.S. economy was fundamentally sound and should continue to grow.

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Originally posted by Farmpunk:
The cheap stock buyback issue aside, what's going to happen to all these now cheap and unsellable houses?

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Being close to fifty, I remember the last time that happened. So none of this surprises me any.

In the long term, the bankers who started and perpetuated this scam will benefit from the fees they "earn" straightening this mess out and YOU,my friends, will do ALL the suffering.

Either through lower pension fund returns,mutual fund exposure to derivative losses,ownership of stocks with derivatives exposure,lowered access to affordable credit,higher bank fees or any combination of the above, the little consumer WILL pay the whole tab for this fiasco while the sneaky bastards who bundled BBB rated derivatives into "investment grade" money market instruments look the other way.

Ontario Teacher's, Barrick, Dallas Police Pension, CALPERS ( California state employees pensions) the fiasco extends its tentacles everywhere. The only winners,as usual, will be the lawyers and the banks as the pension and mutual fund big boys start suing.

Oh, yeah....don't forget, all you little folks will also be paying for the lawyers.

[ 24 August 2007: Message edited by: jester ]

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Originally posted by Stephen Gordon:
OTOH, no-one has the loose change (aka 'liquidity') to buy up all those cheap stocks...

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Steven: The only option for those who are not market savvy,ie players is to sit tight. Market fundamentals will return and stocks driven below value by downward spiralling margin calls and institutional selling to cover panicky redemptions will soon come back up.

Some "cheap" stocks are a bargain but one has to have the informed opinion to determine which are bargains and which are turkeys being dumped as the recent gains are pared.

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Originally posted by Farmpunk:
The cheap stock buyback issue aside, what's going to happen to all these now cheap and unsellable houses?

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It is the risk-takers who are exposed to the consequences of leverage,either in real estate or financial markets who will suffer most.

The sub-prime market is only 11% of the US mortgage market. The majority of home-owners and investors have little direct exposure to either sub-prime or derivatives and most of the "panic" is media driven.