All We Have to Fear Is....

I sure don't like what I'm reading online right now.

"The financial crisis entered a potentially dangerous new phase on Wednesday when many credit markets stopped working normally as investors around the world frantically moved their money into the safest investments, like Treasury bills," says the New York Times. "The stunning flight to safety, away from other kinds of debt as well as stocks, could cause serious damage to an already weakened economy.. ..Everybody is rushing to the door....Clearly, as a collective action, it is a disaster.”

Could this be a replay of the Great Wall Street Crash of 1929? Consider the following from that great 'website of record', Wikipedia.

"The Roaring Twenties was a time of prosperity and excess in the city, and despite warnings against speculation, many believed that the market could sustain high price levels. Shortly before the crash, Irving Fisher famously proclaimed, 'Stock prices have reached what looks like a permanently high plateau.' The euphoria and financial gains of the great bull market were shattered on Black Thursday, when share prices on the NYSE collapsed. Stock prices fell on that day and they continued to fall, at an unprecedented rate for a full month. After the crash, the Dow Jones Industrial Average recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The Dow did not return to pre-1929 levels until late 1954."

Here we are, 79 years later, and things look hauntingly similar. We were taught in school that the government has put safeguards into place to guard against a repeat of the Great Crash of '29. Hmmm. In that crash, the Morgan and Rockeller families, who dominated finance and industry in those years, did their best to stem the tide by conspicuously buying stock. It didn't work. President Hoover basically took a hand's off approach.

I don't hear any big wealthy families trying to do that now. Warren Buffett pulled out of the market many months ago. I have no idea where Bill Gates' wealth is invested (other than Microsoft, which is down about 30% this year, so not so good.) Now, it's the Fed and the Treasury trying to do it, by basically nationalizing three of the biggest financial institutions--Fannie Mae, Freddie Mac, and AIG. But it doesn't seem to be working.

We forget that the Dow also dropped about 22% in one day on October 19, 1987. Could a drop of that magnitude happen soon? That would be a loss of about 2,300 points on the Dow? (Okay, I'm going out on a limb. My prediction for tomorrow: the Dow down 1,000 points or more. But I really hope I'm wrong.)

We shall see. Tomorrow could be very interesting on Wall Street. I'm glad the Methodists invest my pension fund conservatively and very wisely. So far I've only lost about 6.5% since the high a ways back. That's still a lot, but from what I hear, others have lost a lot more.