It would be hard to argue that Americans have never seen a more tumultuous investment and economic timeframe than what has been witnessed in the last week and a half. Many financial and investment markets have set new records for movement and volatility and fear and anxiety over the state of the economy and credit system have consumed Americans for several days.

The tension began last week with news of some creditor bankruptcies and bailouts. Then we heard that the government was going to step in and use emergency loan response funds to help clean up some of the mess in the credit market. Late last week and into this, the news has centered on a $700 billion proposed credit market bailout from the Bush administration, led by Treasury Secretary Henry Paulson.

The last couple days (September 22-23), Paulson and other key members of the Bush administration have been presenting their recommendations before Congress as to how to construct the largest financial bailout since the Great Depression. Lawmakers are concerned with setting up the relief fund in a way that ensures funds deliver the best solution for the long-term viability of both the credit market, and loan consumers. Essentially, the bailout plan would enable government officials to buy up vulnerable assets held by large creditors in turmoil.

Congress, led mostly by Democratic leadership, would like to discuss helping burdened homeowners as part of the plan. They say that it is as important to help preserve the credit consumer’s potential as it is to protect the creditor. Some analysts have called the bailout proposal the largest single economic proposal in American history, both in terms of cost and impact. The wild 3-4 per cent stock swings that have been consistent for a week are evidence. One thing is certain with an approved plan and that is a tax bill of $700 billion for Americans. Officials are trying to ensure the benefits of the solution are worth the heavy price.

Further evidence of the impact of the relief discussion was the largest single day price gain in oil, ever. In fact, oil was up over $25 at around $130 early in the trading day Monday. Even with a sharp $10 price drop late day (by normal standards a remarkable event on its own), the $16 one day spike managed to smash the largest single day move ever for a close over $120. This, of course, is not welcome news for Americans and business owners who had just begin to “bask” in the glow of $3.50 gasoline.

Housing data Tuesday reinforced the general perception that the housing market is still in a rut. However, compared to the unimaginable moves in major financial markets the last couple weeks, a 5.3 per cent drop in housing prices from July 2007 to July 2008 seems pretty tame. The .6 per cent fall from June to July was perceived as a positive by some analysts as it shows hope of a flattening out. Before housing can improve it has to find a stable bottom and fears over buying and investing must subside.

Some TV reports have showed investment groups and touring planners escorting investors around certain areas in metro markets trying to round up cheap home buys while the price is right. More enthusiasm could help propel the market out of its rut and clear out some excess inventories getting in the way.

Market Recap

Hard to figure out the biggest news on Monday. Uncertainty over the Bush administrations $700 billion bailout plan dropped the Dow 372 points. It was the largest single-day oil spike in history that was most eye-popped. At one point, oil was up over $25, but a late slide left crude up $16.37 on the day with a close just over $120. The Dow gave up another 161 points Tuesday with the NASDAQ and S&P chipping in 25 and 18. Administration officials and lawmakers are at odds as to how to put together a $700 billion credit market bailout. Housing prices dropped 5.3 per cent in July. The dollar has slumped the last couple days with the tension in credit and oil.

Neil Kokemuller
Tuesday, September 23, 2008
9:01 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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