the flat earth guy — known on the poltix blogs as "the mustache of understanding" is a menace and a plague." So now we understand that no one in economics actually takes any of these guys seriously. Good to know.

"All those mortgages given to people who really couldn't afford them (made even less affordable by high interest, i.e. subprime rates) were subsequently sold, after being repackaged into strange derivative instruments, etc.) and bought by hedge funds.

Hedge funds claim these instruments have value, as certfied by credit rating agencies. So they can buy stuff (i.e., stocks) with these loans as something like collateral, or rather as proof that they can pay for stocks when called upon to do so (i.e., margin call on futures, etc.)

Guess what? Those mortgages (and the CDOs etc. that they were repackaged into have NO VALUE, because joe subprime can't make his mortgage payments.

Now the hedge funds are overexposed, they don't really have enough money to a) justifiy all the positions they have in the stock market, and b) pay back all the investors, who are going to come calling now that it's evident the hedge funds are not as solvent as they should be.

So, what do the hedge funds do? They need money, and thhe mortgage-backed securities they hold are worth bupkis. They sell stocks they're holding. Which drives the market down.

This is bad for investment banks, etc. and they are in a tight spot, since their own stock is now plunging in value (no buyers, lots of sellers) and so they try to prop up the market by buying stock themselves, gettting the Federal Reserve Bank to make it easier for investors like them to do so (this is called injecting liquidity), and MOST IMPORTANTLY by trying to convince Joe Investor that now is a GREAT time to buy because EVERYTHING IS UNDERVALUED NOW and what a SUPER DEAL these stocks are, while trying to keep a straight face.

It won't work, because few people are dumb enough to buy, so all the big players are in a tight spot —they want people to buy, but d@mned if they're the ones who will go out on a limb. So they sell, but hope somebody else will buy. Nobody's buying. The market plunges.

So, will the government bail out the market by cutting interest rates, etc.? Time will tell. The problem is that if it does something like this and it isn't enough, the panicing will begin in earnest.

It's going to be a bumpy ride down.

Finally, our first Unhelpful Critter award. This goes to a commenter who had one comment that caught our eye as being rather unhelpful—we take criticism, but please, specifics!—and then, when we went back and looked at the rest of his comments, we decided he's never been particularly helpful. So, buh-bye, TheDes! Not-nice knowin' ya.