Why the Stock Market Tumbled

Why the Stock Market Tumbled Jack: It seems like old times. President talks market tanks down to 217 yesterday. It had been a bad week for the market so is this basically just a reflection of these things the President is talking about? Jill: It’s a little bit of that. But let’s just remember, the stock market was up almost 70% from last March. And so, it’s really very important for markets to take a breather. We have not had one period since last March where the market is down more than 10%, a 10% correction. So, this is not a bad thing. I also want to point out that there’s some rumblings in China that they want to cool their economy down. A lot of investors are nervous if they cool down. It’s going to stop our recovery. Jack: Yes, it’s funny you professionals talk about the correction now. We needed it. People at home are like “Ah! This is the last thing in a row” a new proposed regulations. Let’s just talk about this so we can kind of get them straight for everybody. The things that the President is talking about, limit the size and risk taking of banks. You cannot own hedge funds or private equity funds. You cannot use their own capital to bet on market volatilities. These are the new proposed bank regulations. What is this doing to the market place as a whole? Jill: Well, at first, making banks think, if we can’t trade for our own account, we’re not going to make as much money. That’s why you saw the financial stocks go down. But what the government is trying to do is say, “How can we prevent a financial melt down like we had?” And they think if you limit the size of the bank and the scope of their activities that might do it. They want to break up any institution that takes public money and gets FDIC insurance for those funds from trading with those funds to make money. Jack: Would banks screw this? And when they heard these terms, does that scare them? Does that put them into a little bit of shock mode? Jill: I spoke to about a dozen bankers who said incredulously, “How can they be doing this to us?” But a lot of this has been talked about for a while. I want to say also that the bankers are a little bit worried that maybe what these proposals do is not actually limit risk because remember, Bear Stearns, Lehman Brothers, AIG, Fannie, Freddie, all those companies would not have had any changes to them unto these rules. Jack: We heard Kimberly talked about it a second ago. Ben Bernanke doesn’t get another term or what? Jill: I think he’s going to get another term but he’s going to sweat it out. And this is to me a repudiation of the election results in Massachusetts that a lot o f Congress people are saying, “Okay, whoever who was a part of that whole bailout thing, we’ve got to dump them.” Jack: Okay, so this is just a quick correction right? Jill: Crystal ball? Yes. Jack: Thank you Jill, It’s good to see you once again. Jill: Pleasure.