The following is mere opinion based on my observation as to what happened with the consumers and banking. I'm not an economist, merely someone with a bachelor's degree (Biology) and ten years in banking:

I had been doing a lot of thinking and a lot more watching as daily declines over the last six months. The story begins 14 years ago with a post-retirement dependency shift of workers from pension funds to 401k. If this were the only move the country made, then there would be no issue with a downing market (however neither would there have been a fast and furious spike upwards). As workers socked their money away, lending institutions found out that the pockets of all of us had a great potential for going deeper. Consequently with encouragement from the government, we had more generous loans towards housing, credit cards, and other forms of loaning. We created our own 'securitization' that could be tapped into in a pinch. As we placed our bets on the stockmarket via 401k, it ignited other furies as well with independent investing. More investors means higher stock prices. Here's the kicker, the big banks considered our securitization (401k's, etc) as collateral...or more specifically capital (which it isn't really). Add to the mix predatory lending and subtle rate-inflation mortgages and the recipe for consumer economic suicide is complete. People began defaulting on their home loans. Banks realized they trusted too much. Large investors realized these banks don't have reliable capital. Finger-pointing, blame-game, nobody knows who's lying (whether they are or not, it's a betting game more than anything else) nor who is reliable. Stocks plunge, searching for 'actual value'. What is 'actual value'? Well, it's that same number it was 14 years ago before America shifted to using the 401k, before generous loans, before massive credit card balances. That number is around 4,000. Sustainable growth looks like it'll begin around that number once again. I could be wrong, but either way, I now know that about 2 months is a good trend indicator to make a move...if ever we're 'compelled' to trust the system again. First things first, to get our 401k contributors back, we need to have reduce unemployment to about 4%. That's step one on the road to economic recovery.

In what places am I right and wrong? I'd like to learn more about this system and how it works mechanically.

[edit on 11-3-2009 by saint4God]

Originally posted by tgreen2103
I have never heard that opinion about 401(k) and the 4000 point area, but it makes complete sense to me now that I think about it. I could see the DOW evening out around 4000 and staying there for sometime,

Thanks for your kind consideration. I think what tipped me off was the exponential increase in the stock market. Since it's inception, it's been a slow and steady rise for the most part and then *BOOM* it takes off like a rocket. I looked at the years surrounding it and asked myself what happened financially around that time. After answering 'what', then comes the 'how' and 'why' which led me to this conclusion.

Originally posted by tgreen2103
atleast until the PTB determine something else these sheeple need to put THEIR retirement money into.

I hadn't considered an alternative plan, that's interesting. I don't think 401(k) will be like social security with people saying "it's broke!" and refusing to fix it. On the whole, it was a good idea, it's just what banks did as a result of it (trust it as collateral) that was the big mistake. Something else that tipped me off was some time ago I was in financial hardship and the bank to which I owed money to said, "You know you can borrow against your 401(k) to clear your debt". This was the last time I walked into that Financial Advisory office. That told me what it was the bank was REALLY after and had considered it all along in making their loans to me. When I worked as a Credit Analyst, I was hired in at a very 'liberal lending' period and I admit I was very liberal with my approval policy. At the time, all analysts making loans were considered responsible for the loans that defaulted and they docked their monthly incentive pay for making a bad loan. I know I would've been fired a few months ago if I still were a Credit Analyst, but I must say every credit line I approved was reviewed and also approved by the 'quality team' who spot-checked my decisions. If you were too conservative or too liberal, they rejected your decision and gave you a pep-talk. Looking back, all I was doing was what the bank wanted which was to approve as many people as they could for as much as they could without taking too great of a possible risk. My positive 'benefit of the doubt' thinking was probably why I was selected for the job in the first place.

[edit on 11-3-2009 by saint4God]