Today is an indication of how the markets will react to the credit crisis and the economic recession upon us. Perhaps not having a Bill will allow market forces to determine true asset values quicker but in a harsher manner. Many financial companies are going to fail, home prices need to decline, commercial real estate will come back to earth, and overleveraged companies are headed for bankruptcy. If we remove Government interference, all these events will occur very quickly. Why isn't the inevitable a good thing?
It may be, but the risk of the banking system totally freezing globally will cause a massive run on the Bank and dire economic consequences for many years ahead. If banks won't lend, how does a middle class person with a job buy or sell a home? How can the widget entrepreneur buy a new machine or pay for inventory during the peak season? How can one buy a car without a loan? Should we forget about credit cards because no bank will give credit anymore? This is what would happen and could happen unless this credit crisis eases soon.
We are not in normal times. This is not a joke. We have a desparate economic and financial situation and Main Street America will eventually panic. The professional investors have all lost money this year and the average investor is counting his/her losses everyday. Don't get me wrong. This market will create many opportunities and those with a five year time horizon can potentially make a mint by buying high quality stocks where the company has free cash flow and not burdened by too much debt. Nobody is going to jump into this market head first but buying qualty stocks in a down market when fear is greatest is usually the stories we read about how one made a fortune by taking a chance. This scenario will also likely be true for the real estate market over the next few years.
We are in for tough times but there will be opportunities ahead.
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