In the wake of a market meltdown, everyone’s talking about how bad it is. Silly thing, though, few people actually have any relevant domain knowledge. Even sillier, people respond in the worst possible way: they stop spending money.

Stock pricing often has little to do with a company’s balance sheet, the piece of paper that describes how good the company is at making money. In practice, most companies are over-priced based on speculation and emotion. (I love Apple! Their products are neat! Oo, Altria! What a cool name! I should buy some of it! [ed: Altria trades under MO, formally Philip Morris, the cancer-purveyors.])

But then the market starts heading south: people look at the balance sheets, start to have lukewarm feelings towards their beloved, and then — oh my god — it’s overvalued. Those golden parachute-loving bear fuckers! Sell! Sell! Sell!

I digress. Let’s talk about how this is your fault.

When the market has a correction, people flip out. With me-too attitudes, people sell their securities, move money in-between banks for FDIC protection (with a lot of hand-waving means that your deposits are protected up to $100,000 courtesy of the government), and then, worst of all, stop spending money.

In America, the vast majority are waged or salaried, and in most cases, regardless of how the market performs, take home the same pay every two weeks. While IRAs and 401ks might be going for a wild ride (which it will do through market cycles anyway), most people’s working budget remains somewhat steady. (Aren’t fixed-rate mortgages and rent contracts nice?)

However, fueled by media speculation and fear, consumers are completely reactionary. They hear “The Dow dropped 100 points on the day” (I wonder what percentage of Americans actually know what the Dow is) and think “OMG WTF the economy is hosed! I’m not going to have any money!”

Yes, you are. But, you’re not going to act like it and your not spending money is compounding the problem. When the markets’ revenues are down, it’s because companies aren’t making money. And they aren’t making money because you’re not spending money.

And as the economy crumbles, and we “need” billions — possibly trillions — of dollars in the form of a “bail out” (the terms somehow absolves certain responsible parties of responsibility) you know who pays for it? You. In the form of a loan, written by your country, to another.*

Stop trading and stop freaking out. Act as if nothing has happened; because to you, in the short term, nothing did.

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*And don’t get me started on how I feel about the bailout.

[Earlier versions of this post had me ranting on for pages. Excerpts I felt worth keeping around and are immediately below.]

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According to Economist-alum Oz Sultan, “The Market” accounts for only 40% of GDP, whereas Main Street has been and is expected to reclaim its share of GDP. For those of you not on Wall Street (about half of my friends) you’re on Main Street.

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How about the other people who are supposed to be handling the situation? How about Henry Paulson the Treasury Secretary? You voted for him vis-a-vis a Bush appointment. How about Christopher Cox, SEC Chairman? You also voted for him, vis-a-vis a Bush appointment.

Maybe it’s Ben Bernanke‘s fault. He’s the guy in change of the Federal Reserve, and he’s testified before Congress that he’s an academic with not a lot of expertise in the matter. Essentially, his job is to keep a harness on the available cash in the market and keep things stable. Though, he’s an academic, and keeps a lofty view of the market. But, despite his ineptitude, this is usually a good thing. You don’t want a wholly-reactionary mind controlling the money supply.

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Additionally, people don’t bother doing the research. In another example, to unfairly pick on my friend, an e-mail went around denouncing the $85Bn AIG bailout, suggesting the government should distribute $425,000 to 200,000,000 US Citizens. If you do that math, that’d require $85 trillion, not billion. And, if they government went along with the e-mails suggestion, it would put $425, not $425,000, in the pockets of americans. Which is, ironically enough, about what Bush’s economic stimulus payback returned come tax time. See what good that did.

This also means that if those 200MM citizens contributed $3,500 to our $700Bn “bail out” plan, we wouldn’t need foreign involvement. Hell, I’d put up the money. Anyone want to start a fund?

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When the economy is unstable, the only safe investment is porn – Avenue Q.

Think about that.