No, I have not lost my mind, although with a slew of just awful economic data for September and October spilling out, the title of this blog entry is a contrarian statement to say the least. What I mean is, measured by the indicators of past recessions going back all the way through the Great Depression, the shallow recession that I believe started approximately last December, and primarily affected Wall Street with only a glancing blow at Main Street, ought to be ending.

The major US stock market averages have lost over 20% in two weeks alone, and over 10% just in the first four days of this week. Every single day, a major bank on some continent fails. We are in the midst of a full-fledged run on the financial system (I hasten to add: NOT your neighborhood savings bank) that by all definitions except the formal one of a 10% loss in a single day, should be called a crash.

I'll confess right here. I did not believe a crash would happen. In 1929 and again in 1987, crashes occurred less than 3 months after a fresh, exuberant high had been reached. It was exactly one year ago today that the DJIA reached its all time high of 14,165. Until 2 weeks ago, the decline was a slow grinding inexorable washing out much like 2000-2002 or 1973-1974. So much pessimism was already in the system that a crash seemed almost impossible. Then, after Lehman was allowed to fail, suddenly the emergency was upon us. Kudos to Lee Adler of the Wall Street Examiner who exactly cautioned a couple of weeks ago that his technical indicators were consistent with an imminent crash. He was right.

But that does not tell us WHY the market has crashed. This diary is somewhat stream of consciousness, and I'll add on graphs if I can later on, but for now, a narrative of why.

Both national and international finance over the last few weeks have appeared to degenerate into what could be called "Global Financial Calvinball":

For those of you who may not be familiar with the comic strip, "Calvin and Hobbes", Calvinball is an imaginary sport where the rules were made up on the fly by the players, and always of course to the detriment of the other player.

Whether it is the SEC in the US suddenly deciding that shorting financial stocks is not allowed, or the Irish and Greek governments insuring unlimited bank deposits, or the Dutch bailing out Fortis Bank, or the Chinese disallowing lending to US banks,not to mention the gargantuan, ill-thought-out $700 billion Wall Street bailout, national and international financial regulators are making up the rules week by week, and sometimes changing them day by day.

Update 09/28/08: If you are looking for the latest draft of the bill, look here. The draft in this blog post is now out of date - The Economic Populist Admin.

Calculated Risk has the scoop on the text of the bailout bill. 

Hat tip to Calculated Risk via Kossack 3 goldens, who has supplied the text of the Wall Street Bailout Act that Bush expects Congress to approve within the next week.

There is no doubt that the weeks we are living through now will be remembered and studied in the decades to come. In this post I compare and contrast our crisis with the great crisis of 1929 and thereafter.

After it initially appeared that financial hemorrhaging had been staunched, in rapid succession long-standing titans of American finance -- Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, and more likely than not Washington Mutual and Wachovia Bank -- all have failed in one way or another.