The Shit is Hitting the Fan

Okay, so the shit is hitting the fan, and man, oh, man, they re grabbing the cash and running. While they tell you, "Buy and hold! Stocks always win in the long run!" the Masters and Mistresses of the Universe are selling everything and grabbing the cash. The good news is that things like gold and oil are a deal, but it's just because the smart money (what's left of it) are selling everything and hoarding cash. I'll admit to stuffing a safe deposit box a few weeks ago, but it was almost a coincidence rather than a plan,
Anyway, call up your broker and they'll give you the standard pabulum, stocks always go up, buy on the dips (are they still using that one?), equities (US stocks) should be the bulk of your holdings, blah, blah, blah
These are the same morons who told you the Dow would hit 30,000 (it's at 11,422 right now eight years later), that real estate never goes down (A total of 215,749 foreclosure filings were reported in December, up 97 percent from December 2006in US) and that deficits don't matter (credit card debt absurdly high and not going away). Guess what? They're lying again. Here's a little tutorial on how it works and how it falls apart. It's not pretty. Company raise money so they can do stuff by either selling new shares (stock) or borrowing (bonds). Buying stocks means you own part of the company, where buying bonds means you have an IOU from the company. Get it? Good. When a company sells bonds, they essentially have to pay interest to the bondholders, but if they go bankrupt you get in line first to get your money back. When they sell stock, they pay no interest, but as the stock price goes up, the new shareholders join in the rise. If they go bankrupt, the shares are pretty much worthless.
What's happened in the US right now is this- the big financial companies are losing billions of dollars mostly from dumb bets on mortgages, which is driving their stock prices down A LOT. This makes would be bond buyers nervous, so they basically charge more interest, which the money losers can't afford, if they can sell the bonds in the first place. When things get bad enough, these companies sell themselves dirt cheap (and shareholders get little or no money for their shares) or go bankrupt (and shareholders get no money back for their shares
The big problem comes because everybody owns part of everybody else. Fannie Mae shareholders include Citibank, Merrill Lynch, Barclays and other companies that your mutual funds probably hold. Whoops! You retirement nest egg is shrinking. Worse, the other companies in your mutual fund held other owners of these companies and so on and so on and so on. The faster it goes the faster it goes and the companies that go under are not just dipping, they are going to zero. There is no coming back from zero. You can't win in a long-term hold strategy with a stock that is worth nothing. Get it? Okay, the shares you own in mutual funds are actual, real live stocks of companies that may go broke leaving you with nothing. Recent stocks falling to zero include Lehman Brothers, Bear Stearns (close enough), Fannie Mae and Freddie Mac. A year ago, these were the safest widows and orphans type investments available. Now, the shares are useful solely as scratchpads.

Adding insult to injury are the bailouts by the US government. Remember all that talk of free markets, and why it was wrong to tax hedge fund execs, cuz they’d be less motivated to work? Where my bailout on my liar loan? Where my bailout on these medical bills? Where’s my bailout for outrageous tuition? Why do the big guys get helped after screwing us and we remain screwed?