Were the insurance companies next? Yes, they were. Within days of writing that blog, they began to suffer the relentless panic selling, driving the companies down 40% within days. Some are down 80% year to date, the same as the banks that were taken over.
Why is the market still selling off? The Big 3 auto makers thought they would get their bail out money within days of the three CEOs appearing before Capital Hill. Instead of playing Show Me the Money, they were asked to Show a Plan for viability before they get the money. They have been given until December 2nd to introduce a bailout proposal plan. Why is this so important?
If one or more of the auto makers fails, it would render millions without jobs and retirees without benefits. This is the big fear driving the market down. Unemployment could easily reach 10%. It is said that for every person on the line in the factory, there are five more jobs supported from the auto line. It may be in auto parts, sales of the car, car repairs, etc. The trickle down effect would be great.
Many people blame the union for keeping plants at 80% production even when the autos are not selling. The benefits that unions have demanded equal $71 per hour. I listened to many hours of testimony from the head of the UAW and the three CEOs. Based on their testimony, I would not give them the money at this stage or they will be back in three months, needing more. They need a better plan to go with the request if they really want the money.
I think it is the necessary evil. The big three need to receive a bail out but their contracts also need to be rewritten, some of their car lines sold and most made more fuel efficient. The money also needs to stay in the US, not invested in their China factories.
The S&P is now down 52%- a level not seen since 1938. Most of the stocks are trading higher in after hours trading. Let's hope that translates into a rally tomorrow.