Just when you thought it was safe…

Last week ended on a high note—stock markets rallied to virtually unchanged on the week, after the announcement of the proposed $700 billion government bailout of the financial sector. Many were breathing a bit easier over the weekend, but then yesterday, just when you thought it was safe…well, you know the rest. I know you don’t want this to happen—nobody does! We all wish that we never got here, but instead, we are forced to swallow a $700 billion bitter pill and at the same time, deal with the reality that this is likely to be a lengthy and messy process.

Yesterday, as investors slowly recognized this fact, they also had to contend with a sinking dollar and soaring oil prices. Crude oil prices spiked more than $25 at their intraday high and finished with a gain of $16.37, or 16%, at $120.92 a barrel. (Expiration of contracts for October delivery added volatility to the market, but some thought it also could have been hedge fund liquidation.) The less-than-rosy news drove investors to the sidelines. The Dow plummeted 372.75 points, or 3.3%, to 11015.69, down 17% on the year; the Nasdaq Composite Index dropped 4.2% to end at 2178.98, down 18% on the year and the broader based S&P 500 plunged 3.8% at 1207.09, down 18% on the year. The one bright asset class was gold—the December contract jumped $44.30, or 5%, to $909, as investors sought a safe-haven.

Perhaps you thought that the bailout would prevent these kinds of days, but in fact, the plan was a bitter reminder that something this big had to happen to prevent a total seizure of the credit and financial markets. “If we have to live through more of these days, then maybe I think I speak for taxpayers across the country when I say that I would rather not shell out these big bucks,” noted one friend. In the abstract, that might be the case, but we know for certain that doing nothing could have resulted in a financial calamity, so maybe a few 3% swings isn’t the worst thing in the world. In other words, a fence at the top of a cliff is better than an ambulance at the bottom. There will be plenty of time to point fingers and beat our chests about how unfair this whole situation has been, but let’s get things stable before the ambulance arrives.

As Robert Jenkins, the chairman of Investment Management Association said last week, “The crisis arose from the combination of greed, imprudence and leverage. Greed is not new. Reckless lending is not new. Imprudent borrowing is not new. What is new and what distinguishes this credit crunch from past excesses is the unprecedented level of leverage. We will not outlaw greed and cannot legislate against stupidity. But regulators can and must address the issue of leverage.” And indeed we all hope that regulators will refocus and become proactive in the future. But for now, I know that I speak for most investors when I say that all we want is a few days where we can escape history-making headlines or game-changing deals. We just want a few moments of calm, when we can dip our toes in the water without fearing the next massive wave.