It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but the lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”Other experts are sounding the same alarm.

“The British Leyland experience is a relevant and cautionary one,” said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group in New York. “The government got in the business of trying to make a winner out of a structurally flawed company. That’s the risk in the U.S. as well."

On Friday night's Hannity & Colmes, I noted that markets had been "pricing in" the consequences of sending President-elect Obama and strong Democratic majorities, and my e-mail box filled up with outrage at the idea that the president-elect caused the market collapse.

Which goes to show that the president-elect's partisans aren't going to be listening very closely when anyone criticizes the new president.  Of course the president-elect didn't cause the market collapse.  But the numbers post-11/4 are tough to ignore.

With the polls still open on election day, the Dow closed at 9,625, the NASDAQ at 1,780 and the S&P 500 at 1005. 

By comparison, yesterday the markets closed at 8,497, 1,516, and 873 respectively.

That's the bad news.  The good news is that more and more voices are being heard noting the absurdity of the panic the economy is gripped by, and predicting that while there is a recession which will be as difficult as any recession, the underlying fundamentals are very strong indeed and that stock and commodities markets are oversold, real estate fairly priced, and bonds too rich for the real data.

Transcripts of interviews I conducted yesterday with Brian Wesbury and James Smith are here and here and I strongly recommend you read them, a couple of times.  Both men are extraordinarily well-credentialed and respected economists and proven forecasters, and both refuse to be misled by the panic-spreading MSM.  Here's one exchange with Wesbury:

HH: And are you advising your clients generally, not specifically with regard to any particular equity issue, that they need to take a deep breath and take their money off the sidelines and put it in? 

BW: Absolutely. Right now, cash, just in money market funds, is 44% of total stock market capitalization, which is just a huge number. It’s like fifty feet of snow being in the mountains. And when it melts and starts coming back down, the rivers roar. When it comes into the market, I think this market is undervalued, people have run away from risk. This panic that we saw in September and October, it’s visible in the market. And once people get an appetite for risk again, which by the way, they always do. One of my theories these days, it’s highly technical, so get ready, is dogs bark. 

Which brings me back to the president-elect.  If he was simply to announce that there would be no tax hikes in 2009, period, the impact on the markets would be immediate and perhaps even enough to reverse the market psychology that continues to see fear trumping greed.  My guess is that Democrats would prefer to see the market slides abate of themselves so that they can get to the business of raising taxes asap. but markets are the wisdom of the many, and the many are worried right now that the president-elect could take a bad situation and make it very much worse.

The election of Obama didn't cause the market collapse.  But worries about his policies have certainly taken it lower than it needed to go and will continue to act as an anchor on stocks until some clarity emerges about the direction he intends to head.  The sooner the better on that.

As I've said many times here, there is no shortage of money, nor any shortage of credit on an economy-wide basis, despite the continuing popular perception that banks are not lending and the economy is being strangled for want of credit. The problem continues to be a shortage of buyers, and that has a lot to do with a lack of confidence. Faced with tremendous uncertainty and a barrage of bad news, everyone is pulling back. But they could just as easily regain their confidence and start spending again. This is not a scenario that leads us to the end of the world as we know it, but that is what the markets are braced for.

It would be in the public interest to know which members of the Democratic leadership, members of Congress, and their financial contributors were selling shares of (or shorting) Fannie Mae and Freddie Mac this year, and of other financial institutions overseen by the congressional Democrats. (Note: In the private sector, if someone with insider knowledge - as Mr. Frank and Mr. Dodd had access to - makes misrepresentations about the health of a company, that person is subject to criminal penalties.) The press should demand full disclosure before Election Day . . .. 

Will the press cover it?  Will McCain TALK about it?

Well, we can dream, can't we?

Since American taxpayers own 80% of AIG, the primary sponsor of the largest sports franchise in the world, can we call it "soccer" now.

"I've never seen a panic like this," said David Wyss, chief economist at Standard & Poor's. "I've seen stock market drops, but not an overall panic."

(HT: RobinsonandLong.com).

If everyone knows it is a "panic" and not a correction based upon looming recession, then the panic-driven selling must be close to an end as rational investors assess the basic facts that companies like IBM posted great numbers, companies like Apple keep unveiling amazing new products at very attractive prices and American innovation keeps throwing up new goods and services.  The Washington Post can put out nonsense stories like "The End of American Capitalism," but even an enormous loss of wealth gained over five years is only that and not a repudiation of laws of supply and demand or the marvelous effects of liberty on markets, and of course the eventual and widely expected rebound will erase some of that loss.  There's an enormous amount of cash on the sidelines waiting to enter at the perceived "bottom," and not eager to miss the expected dramatic move up, and that will be just the beginning of a recovery in share price for most of the companies that are still doing in October what they were doing in August.  As Victor Davis Hanson noted this morning: "Sometime in the next few days, wiser investors should see that trillions of global dollars are now piling up and could begin to prime the economy — and that still valuable stocks, for a brief period, are up for sale at once-in-a-lifetime bargains."

These basic truths are hard to keep at the front of mind when expectations are shattered, but this is the fourth time I have watched this in 20 years --1987, the dot.com meltdown, after 9/11 and now this.  Each time American capitalism came roaring back.  There are lots of bank failures out there, but lots of banks are very, very strong as well.  The Fed and the Treasury are flooding the zone with credit and will continue to do so.  Inflation may be a problem down the road, but deflation doesn't look like a realistic possibility.

There is also a new economy humming along powered by millions of highly connected Millennials doing business in new and very different ways.  I know a number of them, and most of you do as well.  They are outside of old structures and busy designing an economic future.  For them, the collapse of stock prices is the greatest investment opportunity of their young lives since they can buy their first shares at these ridiculously low prices.  Those of us who invest every month are in fact going to get some greatly discounted shares for a bit, and when the market recovers, please remember that.

Finally, if you haven't yet read Walter Russell Mead's "God and Gold: Britain, America and the Making of the Modern World," now would be a great time to do so.  If you have read it, reread it.  Here is one key paragraph from Mead's opus:

This Promethean drive to acquire all the power that can be acquired, to do everything it is possible for humanity to do, to learn what can be learned, to build what can be built, and to change what can be changed is the force that impelled the three maritime powers to their global position.  Societies that grasp this dynamic and embrace it become wealthier and more powerful; those that reject it or fail to handle its challenges become weaker.  Within societies something similar happens: the more dynamically oriented individuals, regions, institutions, and industries tend to gain power at the expense of those who prefer a slower and safer path.  The unique hold role of the Anglo-Americans in modern times stems in part from the way in which these societies have come to believe that dynamism is their tradition: that they honor the past and acknowledge their roots by pressing on into the future.

Not many Americans are thinking about "pressing on into the future" today, but they will be next week or next month.  (In fact, enough of them might so carefully consider the future to give Obama a huge shock at the polls.)  A NASCAR nation loves its fast economy, but as with fast cars, there are some spectacular wrecks along the way.  We are watching one right now.  At its conclusion --which may have already arrived, we just can't know-- a shaken crowd will exhale, fret a bit and mourn the real damage, and then look forward to the next race.  "Gentlemen, start your engines" will mark all of 2009, no matter who is president.

I wonder how many web star-ups launched this week?  LawStudentCafe.com did, and probably a few thousand others.  More will follow next week, and in ten thousand industries many hundreds of thousands of engineers will continue to innovate and design.  Yes, the Christmas sales season will be slow, and car sales awful, but one thing is certain --Americans will be buying cars for a long long time. There are lots and lots of newly unemployed investment bankers, and most of them are enormously talented folks who will now take that talent away from banking and into the American economy at some other point.  Think of the seeding that is going on in front of us.

The underlying American commitment to building and growth isn't going anywhere, and even if Obama wins and the Democratic majorities expand, the government can only hinder not ruin the deeply rooted American desire to grow and improve.  If the fanatics among our enemies think to strike at America or its allies, they will be quickly be reminded that stock prices have very little connection to the ability to project American military power.  In short, the Greatest Generation did much more than win World War II.  It rebuilt a country capable of absorbing very hard hits and recovering quickly with a dynamism that astonishes every time. 

We saw that in 2002 and 2003, and we will see it again in 2009 and 2010.

And perhaps even in the closing months of 2008.  Perhaps even in the closing weeks of this election.

When days like yesterday happen, I always go back to the advice I got years ago as a teenager -- save and invest for the long term, avoid the emotion of the short-term, don't buy what I can't afford, avoid debt and adjust my investment risk taking downward as I get closer to my desired retirement date. Pretty much basic Dave Ramsey advice.

A 770 point drop in the DOW is certainly nothing to ignore but it's important to remember that on a percentage basis, it is was only 7% (Oct 1987 was over three times that and you can hardly detect the crash on a 75 year chart).  The DOW is where it was three years ago -- it's lost some value against inflation -- BUT it hasn't seen some sort of catastrophic drop either.  Yes, a trillion dollars of market value was lost yesterday, but it's a trillion dollars of market value that didn't exist three years ago before the market jumped 4,000 points during the housing crisis.

And the market has gained back over 37% of the trillion dollars by 10:30am...

The First Bank Run of the Non-Bank Bank Era
by Clark S. Judge
 
According to a late night email from the House GOP leadership, floor debate on the financial rescue bill may begin as early as 8am Eastern Time and will be limited to three hours.  So the House will almost certainly be discussing the bill by the time this column is posted.
 
No one needs to be told that this is unpopular legislation.  As of early last week, Rasmussen found a large plurality of Americans (44 percent) opposed to it, with only 25 percent in support. Opinion was moving against the proposal, and probably still is.
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