Stock Market Drops on WaMu, Bailout Delay
The drama on Wall Street continues. Washington Mutual has gone down, taken over by the FDIC and promptly sold to JP Morgan. And the $700 billion bailout of Wall Street has been delayed.
Bailout stalls, brings Wall Street down
Wall Street, of course, is counting on this bailout. That is why the stock market is down. Every delay means losses to stocks, due to “confidence” issues. It is a chance for the companies to get rid of the bad assets that they chose to invest in (will regular folks get the same Mulligan opportunity?). It clears out the paper. It allows the big New York banks to start lending money for mergers in the future, and lending money to each other.
But will it really affect most people on Main Street? That’s the question. Will the entire economy crumble if Wall Street investment banks fail, one by one? I’m not so sure that it will. Yes, the statement shock for regular folks with retirement plans will be there. And things could get dicey for a while. But most of us, with our modest investments in diversified and fundamentally sound companies (via mutual and index funds), will probably be able to weather this storm.
Besides, the WaMu situation shows that if something has real value, someone will buy it and “save” it. I’m not huge on straight up capitalism. But it appears, in this instance, that there are definite merits to the free market. I mean, look, WaMu was saved without having to resort to taxpayer money. Because, fundamentally, the company is going to be okay. The future returns are worth it to JP Morgan.
Obviously bad assets, on the other hand, like the credit derivatives that the government proposes to buy, do not have the same value. Who will buy them from the government? They are bringing Wall Street down because they were a bad idea in the first place. Why perpetuate the bad idea? Perhaps the government should offer loans, รก la AIG. That would promote liquidity, allow Wall Street firms to absorb the losses, and the government would get its money back. With interest.
What do you think?
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
Tags: stock market, stock market news, investing blog, Wall Street bailout,
economy, investments, WaMu
