After-Shocks

What's Next for Wall Street

[Editor's Note: normally, this blog concerns itself with real estate matters. However, what's happening on Wall Street now is, at its core, all about real estate. So, here goes . . . ]

If you're overwhelmed -- as many people are -- by the magnitude and rapidity of events on Wall Street the last few days (weeks, and months) . . you're not alone.

Leaving out the (very) complicated details, Wall Street has now suffered a series of major earthquakes, of increasing magnitude, culminating with what happened last week -- what could perhaps best be explained as a tectonic plate shift in the makeup of U.S. capitalism.

In chronological order, here's a rough recap:

Summer, 2007: two Bear Stearns hedge funds focused on the housing market blow up. Financial Richter Scale: 3.9

Fall, 2007: The $400 billion auction-rate securities market collapses. Financial Richter Scale: 4.2

February, 2008: Countrywide collapses, is bought by Bank of America. Financial Richter Scale: 5.4.

March, 2008: Bear Stearns collapses, is fire-sold to J.P. Morgan Chase with a $29 billion(!) U.S. government "backstop." Financial Richter Scale: 6.4.

August, 2008: IndyMac bank is taken over by the U.S. government. Financial Richter Scale: 4.8.

August, 2008: Fannie Mae and Freddie Mac are put into U.S. "custodianship's." Financial Richter Scale: 8.6.

September, 2008: Lehman Bros. goes bankrupt. Financial Richter Scale: 7.5

September, 2008: Merrill Lynch loses its independence, sells to Bank of America at a distressed price. Financial Richter Scale: 5.2

September, 2008: AIG nears collapse, is taken over by the U.S. government in exchange for an $85 billion loan. Financial Richter Scale: 7.9

September, 2008: A huge money market fund, The Reserve, "breaks the buck," and triggers a $250 billion run on money market funds. Financial Richter Scale: 7.5

September, 2008: The U.S. government announces unlimited federal insurance for the $3 trillion money market industry. Financial Richter Scale: 8.2

September, 2008: U.S. government proposes $700 billion fund to buy mortgage-related securities. Financial Richter Scale: 8.9

No wonder the denizens of Wall Street look like shell-shocked earthquake victims: that's what many of them are, albeit the financial kind. Unfortunately, this wasn't an act of nature, or God; it was very much man-made.

Venturing a guess about what comes next would be foolhardy in such a mercurial environment. About the only prediction (and advice) that seems obvious is, "prepare for after-shocks."