Economic Armageddon or Darwinism
After yesterday's market drop and this morning's headlines, I expected to see soup lines on the way to work this morning. Instead it was a nice, normal commute.
Yesterday's 777 point drop, while the biggest single day point drop, represented a 7% decline in market value. While that hurt, it was no where close to the 22.6% drop in 1987. This is another example of how to lie with numbers. Pick the one that suits your argument and leave out the rest of the perspective. In 1987, the Dow lost about 500 points; however, it was only around 2600 when this happened.
This is the same as saying that someone who makes $100,000 gets a $7000 speeding ticket. That, again, hurts. However, this person isn't going to go bankrupt over it. Take someone who makes $26,000 a year gets a $5000 speeding ticket and it's going to be hard to make it through. For the former, the ticket represents less than 1 month of gross income. For the latter, the ticket represents more than 2 months of gross income. Which is worse?
We may see the market go down as far as it did in 1987 or 1929. Who knows? Right now, I am not sure anyone knows. As of 10:09 AM Eastern time today, the market is up 240 points.
What I do know is that we are witnessing Economic Darwinism. The strong are devouring the weak. BOA, Citigroup, and JP Morgan Chase obviously have some cash and are buying up the Countrywides, the Wachovias and the WaMUs. I'm sure there will be more culling of the herd, but this is what should happen and it should happen without government interference.
This article, by a Harvard economist, explains what needs to happen. It will be painful and continue to hurt, but we can get through it, just like we did in 1929, just like we did in 1987, and just like we did in 2001.
The question for each individual American is: Will you be one of the strong or one of the weak?