In the last year and a half, the United States stock market major indices have lost more than half of their value. Investors that were riding high just 18 months ago are now wondering what happened to their investment portfolio or their retirement account. Quite obviously there are tons of reasons that the stock market has done so poorly and there is no single cause for such a terrible run in the market, but many people are looking for more scapegoats as the time goes by.
The current economic situation is such that the stock market was bound to falter in a major way, after all the stock market does generally follow the lead of the overall economy since corporate profits are so closely tied to the state of the economy as a whole. The rate of joblessness that has spiked, the bubble in the housing market, and the huge rise in the national debt are all economic fundamentals that hurt the market substantially.
It is also important to point out that the big banks and the corporations who have become greedy and leveraged themselves 35 or 40 to 1 are also to blame for this huge mess we have on our hands. Any financial officer who agreed to a company being leveraged over 40 times what their true assets were had to know that this could happen, but somehow they did it anyways.
Now we are in the act of trying to figure out what to do about the massive problems that all these acts have caused. The banks received a big bailout from the government at the end of last year, and continue to receive more dollars even today. AIG, the world’s largest insurer, is basically a government run insurance business for time being. The automakers have been bailed out in quite a big way, but recent developments seem to say that there are going to need even more money to stay afloat. This is clearly a situation where bad decisions led to a horrible downturn in the market and then many of those who made the bad decisions are receiving taxpayers money to keep their company going. The question now becomes, when will the bailouts stop?
So is it the bailouts that caused the stock market to plunge? The answer to that is no, since most of the bailouts have occurred because the market has done so poorly. The bailouts to this point have been more of an effect than a cause. The real danger though, is that government must be careful not to mortgage our future and keep the national debt soaring by constantly bailing out failing companies time and time again. There has to be an endgame in this whole process. Here is the bottom line: the bailouts haven’t been the cause of the stock market plunge up to now, but if they aren’t reigned in they could be the cause of why the stock market continues to struggle in the years ahead.