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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 2, 2009 at 9:47 AM

What’s behind the market stampede

Top of the news: It’s an old saw that a bear market doesn’t hit bottom “until investors give up.” In reality, bears like this one don’t accept surrender, as we see with the Dow cratering below 7,000 — back to 1997 levels, without 1997’s wind under our wings. “Giving up” means selling stocks — that’s happening, at huge losses. Average investors are trapped in portfolios that have lost as much as half their values. The recent Masters of the Universe in the big institutions that really move the market are clueless. Even Warren Buffet admitted he messed up.

So we have fear itself, packaged in the form of AIG. The best single AIG explainer came Saturday from Joe Nocera of the New York Times. AIG insured all these worthless derivatives, putting up little capital itself, garnering huge fees, assuming the market, especially for housing, would go up forever. These folks make my management of my Visa bill look like the work of a financial genius. Now AIG has reported the biggest loss in history, despite continued taxpayer assistance. The takeaway: there’s lots more scary “assets” in that closet and the growing reality that some money center banks are insolvent.

Two lessons scream at us: AIG led us into this disaster because of lax regulation — credit default swaps were unregulated. And bigness — again. AIG was too big, insuring too many things it shouldn’t. One can hope Congress and the administration will address these core causes of the current unpleasantness. In the meantime, Boeing off 6 percent.; Amazon down nearly 4 percent; Paccar, 5.7 percent; Weyerheauser, nearly 7 percent.

The Back Story: Canada’s relatively stodgy banking system has avoided the worst of the American banking calamity, but that doesn’t mean the country is sidestepping the global downturn. Canada’s economy shrank 3.4 percent in the fourth quarter and barely showed growth in 2008. The data indicate Canada is entering its worst slump since at least the 1990s. A big problem: 75 percent of Canada’s exports go to the recession-slapped United States. Uh, oh, Canada.

Today’s Econ Haiku:

Remember Jack Welch

He yelled, ‘Shareholder value!’

GE shares: eight bucks

Comments | More in Banking, Macro/Big picture, Stock market

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