Gary,
America is still caught up in Reagan overhang. They seem to have forgotten Bill Clinton's words in 1991, when he began his presidential campaign:

The Reagan-Bush years have exalted private gain over public obligation, special interests over the common good, wealth and fame over work and family. The 1980s ushered in a Gilded Age of greed and selfishness, of irresponsibility and excess, and of neglect.

George Bush's 'Reagan style' economics have seen the optimism of the 1990s disappear, wages to lag behind inflation, poor employment growth, increased debt, and a looming formal recession. And this is heralded as a great success by the Republicans.

Peter,
its a bear market --one defined by a fall of 20 per cent or more. The Australian stock market is down 24% from its Nov 1 high, and close to $100 billion was wiped off the value of the local sharemarket yesterday. The losses since the markets Nov. 1 peak are close to $400 billion. It's serious money. It's a similar story--a rout-- across the global markets.

Those who had borrowed money to invest in a roaring sharemarket are in strife. No doubt the traders are interpreting the fall as a 'dip' and are looking for a bounce to pick up some bargains as the others scramble for the exits from the cascading dominoes.

Swan is continuing to say that Australia is well placed to rid out the turbulence flowing from events in the US.

Gary,
it never ceases to amaze me how quickly 'regualtion-lite' regimes step in to prop up stock markets (the symbols of their neo-classical Darwinio-utilitarian ideologies) when they head south. Strikes me as hypocritical. I thought the intellectual purity and beauty of free-market dogma was that it provides a mechanism to weed out the weak and unworhty?? In the words of the inimitable king neo-con Don Rumsfeld (to me, in a not dissimilar context): stuff happens!

Luke,
markets rise and fall but in the long run they rise more than anything else. That is the trader's view.They are now on a high because of all the opportunities thrown up the dive into bear territory. The bounce is just around the corner. You can smell it. Its only a matter of time before the bull run begins again. They can feel it in their bones. They are firm believers in the China growth story. So the bargains are in China. Let's go boys. Money for jam.

Luke,
One view for why the monetary shipwreck happened is this:

a liberalised financial system, which offers opportunities for extraordinary profits, has a parallel capacity for generating self-feeding mistakes. The story is familiar: financial innovation and an enthusiasm for risk-taking generate rapid increases in credit, which drive up asset prices, thereby justifying still more credit expansion and yet higher asset prices. Then comes a top to asset prices, panic selling, a credit freeze, mass insolvency and recession. An unregulated credit system, then, is inherently unstable and destabilising.

It's a familiar view and has some truth. I would say that on this account Wall Street is selling itself to escape from the disaster that they have created. So let the "gales of creative destruction" wash this mess away. That's the view of the financial wizards on Wall Street's. Let them live and hang on their own words.

Nan,
There is an irony of government funds--- sovereign wealth funds that are vast pools of money controlled by governments from China to the Middle East---bailing out Wall Street titans formerly noted for their privatizing zeal. Wall Street now believes in (limited) government ownership.

I wonder when the Street has yet to come around to notion that fee income from managing other people’s money should be taxed like other fee income.

Luke,
this quote from George Soros in his The worst market crisis in 60 years in the Financial Times captures the free market ethos quite well:

Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.

the rhetoric of Wall Street has to be taken with a large grain of River Murray salt.

Gary
George Soros in his The worst market crisis in 60 years op-ed in the Financial Times spells out the view that you mention and connects it to bad management by the US monetary authorities.

Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

The gun is pointed at Ben Bernanke--Mr Candyfloss who blows bubbles just like Alan Greenspan so as to give Wall Street what it wants.

Gary,
Earlier we had a lengthy discussion about Government intervention or not in a so called free market. Expertise was quoted to authenticate a non intervention stand. I simply ask has not the USA, setting aside the role of the Fed. Reserve, both at Executive level and Congress made a very considerable intervention in an attempt to stabalise the so called free market. Must this be seen as major failure in economic theory.Perhaps Americans at least, are being asked to accept that when the market has failed by its own actions its OK for it to be rescued by Govt.Is Govt. intervening to protect the "people" or the money?