The Frightening Future in the Market Meltdown

by Robert Freeman

For the better part of a year every senior government official involved with the economy, from Fed Chairman Ben Bernanke to Treasure Secretary Henry Paulson, has said that the bursting housing bubble and the sub-prime mortgage meltdown were “contained.” This, we now know, was the financial equivalent of “Mission Accomplished.” If only reality could be managed forever with sound bites.

The question now is not whether the problem is contained but how damaging will be the fallout. Not whether the contagion will infect other sectors of the economy, but how badly. Not whether other economies will be dragged into the maelstrom, but how many and how deeply. And the most important question, where’s the bottom?

The easy truth is that nobody knows the precise answer to these questions. The harder truth is that things will get a lot worse before they get better and that the bottom will be much lower than official posturing now dares reveal.

The problem with the market today has two roots. The first one is intrinsic to the market itself. The second is part of the larger economic context in which the market operates.

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