U.S. Markets Head for A Crash

U.S. stock markets and institutional investors and traders wanted desperately to forget about Oct 2008 and the year-long pain that ensued. For them the Dow was back up and they wanted their bonuses. They did not care that careless decisions made by banks and insurance companies had brought the U.S. economy to the brink of total collapse and resulted in the greatest economic downturn since the Great Depression of the 1920s and 1930s.

The likes of JP Morgan Chase and Goldman Sachs had off-loaded bad loans to the government (i.e., Bear Sterns) and had changed their form of incorporation to benefit from the government bailout (as did Goldman when it gave up its investment banking classification to become a commercial bank) and they were sailing free.

Then in December 2010 came the election for a U.S. Senate seat in Massachusetts held by the Kennedy brothers for half a century. When the results were in, a Republican had won and joined the all Democratic Mass delegation.

The election served as a wake-up call for the President who realized that his financial advisers (Larry Summers and his protege Tim Geithner) were out of touch with the anger the American people held for what the banks had did to their jobs and retirement savings. The president realized that the people correctly saw that the banks were sailing free while they, the people, were feeling the pain.

The president remembered the words of a past Chairman of the Fed Reserve (Paul Volker) who had argued for the reduction in the size of banks and for the elimination of "casino-like" operations at the banks. The president called a press conference to let the banks know we was ready for a fight to change their ways.

The bankers realized they weren't smooth sailing yet.

The champions of the banks (Bernake, Summers, Geithner) started to worry about their jobs.

And the markets and investors headed for the exits.

Observers started to wonder if we would see a crash when markets opened on Monday.

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US Market (Dow) past 1 month (as of 1/22/10)












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