The Spiral Continues: Panic in the Markets
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We can solve this panic. And finally the developed world's finance ministers are meeting under enormous pressure because markets are in "freefall" according to traders. For those of you who slept well last night, here is what happened. At the open of Tokyo's stock exchange, the market dropped straight down almost 10%. It then wallowed the rest of the day. This patten was repeated in Europe. Stock prices "rolled off the table." Tokyo ended down 10%, to almost where it fell just before the Iraq War. European markets rolled off the table, and rebounded, right now down around 5%.
It was clear to economists like James K. Galbraith and Paul Davidson, that the solution was not in the realm of high finance, but in the underlying mortgages. Only when there is a bottom to the basis of money, which in our case is assets like houses, will there be a true bottom to the market and the economy.
It is not that "people could not pay back their mortgages," because default rates are high, but not unbearably so. It is that because of the crash in real estate, when someone did not pay back their mortgage and the bank foreclosed, the bank could not get the value of the mortgage back, and it took a long time to sell, or it was forced to take a bigger loss. Blaming a few poor borrowers who were robbed by banks is something that only people in Wingnited States of Nutmerica can believe for long. It was the credit bubble, not the foam, that brought this on.