The sky is falling! (or not)

[Chase]

Little did I know Thursday, September 11 that today would be referred to in some circles as *Black Monday*. It sounds scarier than it really is because they usually assign the color black to most very bad days on Wall Street. It dipped a tad over 500 points today, down under 11,000 points for the first time since January, 2006. This isn’t the first time since early ‘06 the Dow has dipped below 11,000. One would have to look all the way back to June of 2001 to find that dip. Let’s ignore the historical dates for a few moments and focus on the significance of recent events. The market had a bad day. It may bounce back tomorrow or it may continue to slide for the next few days. But the economic map of our country continues to change in dramatic ways. We woke today to learn Lehman Brothers filed for Chapter 11 bankruptcy and that Merrill Lynch was absorbed by Bank of America. AIG, one of the nation’s top insurers is teetering on the brink of its own disaster and is scrambling for ways to raise badly needed cash. Fannie Mae and Freddie Mac were dramatically taken over by the federal government to prevent a wide-scale mortgage crash. Eighteen banks have failed since July and a frightening number of big name banks remain on the endangered list. Important foundations of our economy are fracturing in a manner similar to the way they did during the Summer of 2001. The *911 Attack* provided us with a needed enemy. Islamic terrorists were easier to hate than stock managers who had mishandled retiree accounts (remember Enron?). Solutions were easy to find during the Fall of 2001. The Fed cut the Prime Interest Rate in half from 3.5% before the *911 Attack* in steady steps to 1.75% by December 11th. The American public was encouraged to go out and spend. It was important to spend heavily for Christmas so that we wouldn’t go into a recession. Credit was granted beyond our wildest imaginings. Cars and homes were sold to people who never had a better opportunity to buy before. Many were encouraged to refinance their homes at the lower interest rates. It didn’t stop there. Home owners were encouraged to borrow on the *perceived* equity of their homes. There’s one lesson borrowers should remember at all times. Equity is only a perceived number on a piece of paper until it is money in the bank. After the *911 Attack*, the Federal Reserve Board opened up the gates and we spent our way out of the feared Recession of 2002. Once the gates were open, it was impossible to stop the flow of events that have brought us to where we are today. What's next? Check this feature tomorrow….