Reasons for stock market crash

This is a post made to a Motley Fool message board. It sums up what I think is responsible for the recent stock market crash. (Actually, it is a short-sighted summary--correct as far as it goes-- because I think that the broader reasons for the crash is the need to elevate the collective spiritual development of the planet.)

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This is commentary on Mark's speculation that deleveraging could mean a general indefinite drop in collective stock prices.

The same thought had crossed my mind.

Like Mark, I am not an expert, and am feeling my way through this situation. This is a citizen investor thinking out loud.

I find myself thinking of a giant balloon filled with air. The air is money. The balloon (the economy and stock prices and home prices) gets bigger the more money is put into it. The economy balloon got real big because of the massive leveraging the banks and other entities employed, lending to home owners, who used inflating home prices to buy all sorts of consumer goods.

Now there is widespread deleveraging. The balloon is getting smaller. Home prices are going down. Consumers are buying less. Banks are tanking.

So, why will stock prices go back up?

Well, they might go up if massive amounts of money are pumped back into the balloon, it would seem. And the government is doing this. They are pumping money like crazy into the banks, and twisting the banks' collective arm to lend, NOW. Fill up the economy balloon, pronto.

My question: Is the amount of money the banks are pumping into the banks nearly the same volume of money that was lost through deleveraging? If not, will the allowable leveraging ratio be quietly increased so as to re-inflate the balloon?

Major caveat: I am not by any means an expert on this subject. I could have all sorts of flaws in my assumptions.

It would seem to me that if the money is there to lend, and the leveraging is made available, but it doesn't get used (i.e., pumped back into the balloon), then stock prices may well take a long time to reach previous highs.

At the same time, it would seem to me that easy-to-borrow money will very likely eventually get borrowed because of greed, desperation, and a wholesome desire to build and generate useful things.

But to avoid another crash, the money has to be put into the hands of responsible handlers of the money. In the case of the real estate bubble, the money was put into the hands of irresponsible brokers, and investment banks, and underqualified home owners. Also, laws requiring that mortgage money be lent to various underqualified sociological groups mandated that cash be given to those unable to manage it properly. (This mandated lending of money to those unable to handle it is a very "undersung" factor in the present crash, it appears to me.)

So, unless there is some way to keep the cash out of the hands of those unable to manage it (think: 20% down, and it can't be a gift); and unless the cash is kept from the hands of fly-by-night mortgage brokers and ethically-challenged testosterone-driven 29-year-old investment bankers driving Maseratis and pulling seven figures a year, it would seem to me that the economy will eventually take a hit once again, down the road.

Yep, this has been a long post.
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