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Dave O'Gorman, Writer Waiting For Clarity on the Bailout? Don’t Wait Too Long

by Dave O'Gorman, Writer
September 29, 2008

I don’t want to sound too alarmist, but among the circle of economists whose countenance I keep, the question now is whether it will even matter in a few more days who wins this election.

A day in which all of the major US equity indices were down by amounts ranging from six to ten percent is a bad day on Wall Street in the eye of even the most un-astute follower of these things. However, what most people don’t realize is that every time an equity market loses value the margin traders in our midst must react by selling even more equities to cover their positions.

Therefore, tomorrow is the day to watch for a major sign: if equities are down another eight percent, there could be no coming back for the foreseeable future; there just isn’t enough liquidity to cover those kinds of positions. Two or three more days like this one and the banking sector will pretty much come totally unglued. A week of these kinds of losses, and–I never thought I’d say this–the question of whether Barack Obama or John McCain reaches 270 electoral votes will not make the slightest difference to the national agenda.

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