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Comment by holdenc | Hacker News Reader

Let's get real about the China stock market "crash" -- all major China stock indices are still up between 30% - 70% from 12 months ago. Somehow the run-up in prices was business as usual, but the slide down is a catastrophe. A real crash has much further down to go. (scroll down to the China indices) http://www.bloomberg.com/markets/stocks/world-indexes/asia-p...

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The issue is 80% of investors are retail/ mom and pop investors. Not banks, funds, etc. Likewise most stock is purchased on the margin with loans leveraged against potential (and expected) growth of the stock. This is literally what happened to the US before the Great Depression. Not only are people losing their life savings, but they're immediately shackled to debt they have no means to pay off.

So now a larger number of brokers/banks are tied to toxic debt, which is in a quantum of state of both being/not being an asset (if you think it is the crash of 2008 wouldn't have happened). While I doubt we will see bank failures (The CPC will step in), it will resonant.

According to the Economist, a very small fraction of Chinese households are invested in the stock market.

<1% of Americans owned stock when the market crashed in 1929. But its slightly beside the point. The depression was more triggered by a perfect storm of incompetence/environment debt.

-Hawley-Smoot Tariff did not work at all, and made things MUCH worse.

-Farmers burning their crops in protest of rock bottom prices post crash instead of selling them.

-The Dust Bowl worsened the situation greatly.

-Wide spread bank failure.

The timeline for the rise and fall of prices has been very fast. For example, if the US stock market indices double in price tomorrow then fall by 50% a week later how much worse off are we? Yes some people are getting hurt by this, but not as much as if the run-up in prices had been more reasonable.

oooh margins! So it's gonna be more like USA 1929 or 1907...

That's a pretty bad way to look at a bubble and feel calm. In reality, most bubbles at start are bought in by smart money, insiders, big boys etc. and at the end (peak) are bought by retail investors - mom&pop, grandmothers etc. who are not sophisticated and put their life savings or borrow on margin and bet on single stocks (not the index). They see the rise in individual stocks and get in too late. These retail investors are feeling the pain right now and their loss is huge.

So yeah, I wouldn't feel calm about the bubble bursting.

It's certainly a shame when unsophisticated investors pile in after a huge run-up in prices. The good news is that if they got in one year ago they are likely still above water. If they got in after that they should have been wary of bubble prices.

You are assuming the slide is going to stop today and/or that they can pull their money out today. If there is a huge rush to pull money out of the market it will accelerate the decline. A classic bubble pop.

Because the nice guys wearing suit and tie tell them it is all perfectly save, just sign the dotted line and they will put your (loaned) money to work on the market...

The government is panicking, the latest move being to forbid big holders (> 5%) to sell for 6 months. This is something real, if for nothing else the inept response of the authorities will poison the market for a long time as the regulatory incompetence needs to be priced in. And this is true no matter how much the international 50-cent brigade wants to diminish it.

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