(I have been trying to get this posted for two days! Issues, but back in Kilkenny now, and online.) This is from Tom McClellan, of Oscillator fame. Here is a riddle for you to ponder. I'd like you to consider a hypothetical situation, with these economic parameters: US unemployment is above 9%. The federal government is running large deficits. A summer decline has investors worried. And this comes after several years of sideways price movement for stocks. Now, into that environment, imagine that a populous country and important trading partner of the US announces that it is going to default on foreign debt equivalent to about half the size of its GDP. And imagine that this default soon spreads to several other countries. So given all of these conditions, what happens to the stock market. From the paper: "From the middle to late 1970s, a number of economists, government officials, and journalists expressed concerns that the volume of lending to less-developed countries could entail serious problems for U.S. money-center banks and the international financial system. At the same time, however, the market – as reflected in both money-center bank equity prices and corporate bond ratings – apparently did not perceive a problem until the crisis actually broke out. Regulators' attempts to urge banks to curtail LDC lending appeared to have had no significant effect on lending practices, even as evidence suggested that Latin American nations were having increasing difficulty meeting current debt obligations. The regulatory system therefore broke down and was unable to forestall the crisis. In the final stages, the realization that banks would not recover the full principal value of existing loans turned international efforts from debt rescheduling to debt relief, and substantial funds were raised through the IMF and the World Bank to facilitate debt reduction. The shareholders of the world's largest banks assumed the losses under the Brady Plan, which ended the crisis after a decade of negotiations. "The LDC experience, as reflected in the regulators' handling of large banks after the crisis erupted, illustrates the high priority given by banking authorities to maintaining stability in the banking system. It also represents a case of regulatory forbearance with respect to certain supervisory rules and standards. The 1979 interpretation of the loans-to-oneborrower rule allowed banks to continue lending, and the delay in recognizing loan losses avoided the repercussions that could have threatened the banks' solvency. Over time forbearance proved to be successful, however, because loss reserves and charge-offs were greatly increased and no money-center bank failed because of LDC lending."