Econ-ocalypse: Dow Drops Below 7,600, No Deal Reached on Auto Bailout

Posted by Ian Welsh, Firedoglake at 2:52 PM on November 20, 2008.

Well, the Dow has broken 8,000.  As Jane noted there is no technical support below 8K, so where it ends now is not known.  A historical low for a bear market, as I've written in the past is 6K, which is about 7 times earnings. 

The issue isn't just technical trading, it's the spiral of margin calls, where the lower the market goes, the more investors who have borrowed funds to invest have to sell in order to keep enough value in their accounts to cover the loans they've taken out.  The term for this is an Ohmstead break, and if one occurs, the drop will become uncontrollable.

In the meantime, I am amused that the same White House and Senate who supposedly passed the bailout bill to save the market wasn't willing to push cough 25 billion to stop this meltdown from occuring.  When the White House and Congress failed to pass a restructuring bill, investors got scared, because even if politicians are stupid enough to be stampeded by Paulson, then too stupid to understand what 3 million job losses will do the US economy, investors know that it would devastate the economy.

But hey, the real job of the bailout was to save Congress's white collar friends.  The real goal of not passing a bill that gives auto companies 25 billion, a fraction of the 700 billion given to Wall Street so they could give themselves 70 billion of bonuses, is to destroy a major union.

Priorities, ya know.

Tagged as: economic crisis, economic meltdown, econ-ocalypse, dow