Friday's Action Was A Much-Needed Dose of Reality

by: Herb Greenberg

Will Monday be another Black Monday? I don't know and, frankly, don't care. This market could easily go up as quickly as it went down. The Dow may very well go to Ken Fisher's target of 18,000 before it's all done.

What I do know is that between here and there the market needs to get the complacency wrung out, and Friday's action was a step in the right direction. We all knew the market would get blindsided by something out of left field. This time it was a series of credit-related events culminating by the CFO of Bear Stearns' (NYSE:BSC) willingness to tell the truth: That this was the worst credit market his firm has seen in 22 years.

As if any of this should be a surprise? Nobody wants to see anybody lose money, but investors have been living in a world of denial for months about the growing size of debt-backed private equity deals, the mortgage mess and the related ripple effects.

The only good news, it appears, is this time the retail investors didn't take the bait and pile in at the last minute. The bad news: Maybe many of them were too worried about their mortgages to participate, which in a strange way may have actually been a blessing.

Many of those investors are sitting in homes financed by adjustable loans that are about to come due. Others have homes in escrow that, given current market conditions, sadly may not be able to close unless they have the top credit scores and enough money to put down.

Yes, this is gloom-and-doom, of the worst kind, but it's also real life that's simmering beneath the surface for many Americans.

Things are supposedly so bad, according to a growing chorus of pundits, that it's time for the Fed to ride to the rescue. Some of these, oddly enough, are the same people who not long ago were saying that these problems always resolve themselves on their own and that losses come with the territory. That, after all, is how the free markets work. Plenty of smart people, meanwhile, are saying the only time the Fed should get involved is if there's a liquidity crisis, which there doesn't appear to be right now.

And even if the Fed did arrive on the scene, with the exception of a brief blip, it may be too little to late. "There is no watershed solution," is the way my pal, Todd Harrison, put it in one of his missives today at Minyanville.com. "We the people have made our bed with massive spending, incessant borrowing and no saving." Amen.

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