Our financial system is crumbling this week.

[ghostrunner]

Let's not get too carried away. I've been reading about finance the last few months, and it seems economists and investors alike both get too down when the markets are down, and too high when the markets are up. There were only a few people preaching caution in the late 90s when everything was booming, and most people were investing money in anything internet related. Now the reverse is true and everyone's down on the market.

I was just reading a finance book last night from 2000, after the dot com stocks tanked, and the writer is generally pretty cautious. But a few points he laid out.

- A dollar invested in stocks in 1802 would have been $7.5 million by 1997, and worth $560,000 after taxes and inflation. The same dollar in bonds would have been worth $803.

-If you invested in all the companies (as in an index fund) on the NYSE at any day in it's history, you would have made a profit over any 15 year period. And you would have beaten bonds over any period exceeding 20 years.

-In 1983, inflation was near 20% and unemployment over 10%. The stock market quadrupled over the next 12 years

Basically, there's been some dismal 5 and 10 year stretches along the way, but over time there's no reason to think the market won't recover from something like this. I don't know if investors had any wool pulled over their eyes so much as they didn't do enough homework to begin with. I know I didn't when I first started putting money away.

[arnie.k]

Let's not get too carried away. I've been reading about finance the last few months, and it seems economists and investors alike both get too down when the markets are down, and too high when the markets are up. There were only a few people preaching caution in the late 90s when everything was booming, and most people were investing money in anything internet related. Now the reverse is true and everyone's down on the market.

I was just reading a finance book last night from 2000, after the dot com stocks tanked, and the writer is generally pretty cautious. But a few points he laid out.

- A dollar invested in stocks in 1802 would have been $7.5 million by 1997, and worth $560,000 after taxes and inflation. The same dollar in bonds would have been worth $803.

-If you invested in all the companies (as in an index fund) on the NYSE at any day in it's history, you would have made a profit over any 15 year period. And you would have beaten bonds over any period exceeding 20 years.

-In 1983, inflation was near 20% and unemployment over 10%. The stock market quadrupled over the next 12 years

Basically, there's been some dismal 5 and 10 year stretches along the way, but over time there's no reason to think the market won't recover from something like this. I don't know if investors had any wool pulled over their eyes so much as they didn't do enough homework to begin with. I know I didn't when I first started putting money away.

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

[ghostrunner]

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

Economies and companies grow, and always have. That's not a bunch of smoke and mirrors. Some of the market is, but that's always been true.

Gas prices have risen and bad loans were approved. That's a had a big impact on everyone, but it's not going to last forever.

[heyzeus]

I just don't understand why the Fed bailed out Bear Sterns and Fannie Mae/Freddie Mac, but left Lehman to go bankrupt. The market wants consistency and predictability, and now the message is: maybe you get bailed out, maybe not.

[arnie.k]

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

Economies and companies grow, and always have. That's not a bunch of smoke and mirrors. Some of the market is, but that's always been true.

Gas prices have risen and bad loans were approved. That's a had a big impact on everyone, but it's not going to last forever.

i'm not saying it'll last forever. i guess i just grasp a larger part of it as "smoke & mirrors" than you. i'd offer you reading materials, but my favorite writers on the subject would probably be viewed as lunatic left-wing socialists by any american (and they probably should be).

i do tend to be a huge pessimist with regards to the global economy, and where it's headed, so i know my views tend to be skewed that way.

[Freed Roger]

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

Economies and companies grow, and always have. That's not a bunch of smoke and mirrors. Some of the market is, but that's always been true.

Gas prices have risen and bad loans were approved. That's a had a big impact on everyone, but it's not going to last forever.

I agree ghost, about the history of US markets. But if you look at the history of World economies. None of them have always been on the increase. Its not always up. I view countries as having an economic life cycle. The US was in the upward expansion mode for 100+ years. But in some regards, we've passed our peak as an economy. As someone here just wrote - money doesn't grow on trees.

I still think we need to be careful. The globalization may be the US savior - So many nations have a vested interested in our economy.

[ghostrunner]

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

Economies and companies grow, and always have. That's not a bunch of smoke and mirrors. Some of the market is, but that's always been true.

Gas prices have risen and bad loans were approved. That's a had a big impact on everyone, but it's not going to last forever.

I agree ghost, about the history of US markets. But if you look at the history of World economies. None of them have always been on the increase. Its not always up. I view countries as having an economic life cycle. The US was in the upward expansion mode for 100+ years. But in some regards, we've passed our peak as an economy. As someone here just wrote - money doesn't grow on trees.

I still think we need to be careful. The globalization may be the US savior - So many nations have a vested interested in our economy.

I'm not saying it can't end, but I think we'd need a bigger catastrophe. It looks like there's a lot of growth coming in green technology. It's becoming more popular and it's also necessary, which is a nice combination. Much of it will fail, but some of it ought to skyrocket if it can deliver.

[Hungary Jack]

I just don't understand why the Fed bailed out Bear Sterns and Fannie Mae/Freddie Mac, but left Lehman to go bankrupt. The market wants consistency and predictability, and now the message is: maybe you get bailed out, maybe not.

Well I'm glad they didn't repeat the first mistake. When the federal government starts bailing out private companies on a regular basis, we might as well move to Canada so we can have a socialist government that actually works fairly well.

My understanding is that the threats posed by a Bear bankruptcy could have toppled the entire financial system, thus the Fed felt they had to act. Who knows who truthful this is/was.

I sure hope the Fed makes a clear policy statement about its involvement in private sector risk and reward--or lack of involvement. I don't want a penny of my tax dollars insuring bankers who think asset prices will always continue to rise, or at least long enough so that they can flip whatever exotic securities they want to purchase with shareholder dollars, and the implicit backing of the government.

[Michael]

I just don't understand why the Fed bailed out Bear Sterns and Fannie Mae/Freddie Mac, but left Lehman to go bankrupt. The market wants consistency and predictability, and now the message is: maybe you get bailed out, maybe not.

The Fed is worried if they keep bailing out banks they'll promote risky behavior in the future. Banks need to fear failure.

[Freed Roger]

money doesn't grow on trees. if the stock market's the exception to this rule, it just shows that there's something fundamentally wrong there.

i am not an economist, but what i do understand about the current situation scares the crap out of me.

Economies and companies grow, and always have. That's not a bunch of smoke and mirrors. Some of the market is, but that's always been true.

Gas prices have risen and bad loans were approved. That's a had a big impact on everyone, but it's not going to last forever.

I agree ghost, about the history of US markets. But if you look at the history of World economies. None of them have always been on the increase. Its not always up. I view countries as having an economic life cycle. The US was in the upward expansion mode for 100+ years. But in some regards, we've passed our peak as an economy. As someone here just wrote - money doesn't grow on trees.

I still think we need to be careful. The globalization may be the US savior - So many nations have a vested interested in our economy.

I'm not saying it can't end, but I think we'd need a bigger catastrophe. It looks like there's a lot of growth coming in green technology. It's becoming more popular and it's also necessary, which is a nice combination. Much of it will fail, but some of it ought to skyrocket if it can deliver.

My point was looking at the long long history - dynasties like Roman empire and Great Britain were knocked back because they were overextended. I keep thinking of a book I read most of (too complex, I couldn't finish) called Wealth and Democracy by Kevin Phillips. He takes the long view, and points out a lot of current US economic trends that mirror former dynasties that passed their peak.

Older economies in Europe maxxed out on their potential long ago - they used up their natural resources and developed most of their space. Now their economies aren't as powerful. I guess, what I'm getting at - the US economy based on brain-dead consumerism and endless expansion is not sustainable. But something slightly less could be, and actually wouldn't be all that bad.

I don't think the sky is falling by any means. as you mention - there are so many factors and variables to weigh - like potential growth in green tech, globalization, world sharing of risk. We're talking about stuff that makes heads spin.