l do not know much about this subject, but wanna know who it will effect, and how.

Becuase of toxic mortage securities that banks would lend out to people & never receive back. So many banks tthat were leniant with loans such as Merrill -Lynch & Citi Group lost all there money due to this & brought others down along teh way. It could lead to recession & almost has, but with the help of John MccAins economic policies the market will be finehowever is obama is elected he will raise taxes & teh last president to do that during economic crisis was herbert hoover, & that lead to teh great depression

The stock market is crashing due to problems in the financial marketplace which is now spilling into the ''real world'' - from Wall Street to Main Street. As banks struggle to get out from under a mountain of losses, they naturally become more conservative & more stringent when it comes to the loan market (both inter-bank & to companies & individuals). As credit dries up, people spend less & companies cut back on capital spending. This leads to a contraction in the economy, thus leading to recession. As companies do less well, their value to investors diminish thus their stock prices in turn fall, & the market goes further down..

As consumers cut back spending, companies r then forced to produce less, & to cut costs. This translates into lay-offs, leading to even less consumer spending & so on.

Thus a vicious cycle is born.

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This question was posted when? May l suggest that if u r ignorant of the subject that u read a primer as to the establishment of the market, the purpose of the market ,what causes trends , rises & falls & who invests, & for what reasons. Once u absorb the basics, u will have a better understanding as to why people invest, who causes the very large dips aand the methods to counteract them. It has caused a lot of people worry but if one was not forced to sell in a down market nothing was lost. If u had money to invest & u have faith there is good money to be made.

The stock market is not crashing.
The Dow and SP500 were up more than 4 percent today.

Stocks were overvalued a few months ago because some investors overestimated the demand for houses, cars, and some other things.

The following paragraph is taken from the Forex & Stock Market Behavior page of http://onlinesalesplus.com. It was written before the current ''crash,'' & relates to ur first question. My personal answer to ur second question is it will probably make those people rich who invest when the prices r so low.

Anyone who really follows these markets knows that the underlying prices fluctuate, often violently, due to changes, & equally effectively, due to rumors about these changes in various factors. These factors include not only the company & sector-specific conditions, but also economic & geopolitical as well as the general market environment. Thus a nice looking trading system that promises to achieve a desired goal somewhere along the yellow brick road as long we follow the buy & sell arrows, may be totally misleading.

No buyers, lots of sellers. As the stock market declines, more people want out, meaning more selling, more declines, more panic selling, more declines, less money, more sellers, fewer buyers, & the entire situation turns into a fire sale.

The root cause of all this is home mortgages given to people without documentation, no provable income, etc., & this was caused by grandious social engineering efforts of the more liberal in our government to force banks to make loans to people with no income, no job, etc.

Then mortgage brokers figured out they could package up all this junk, sell it up the line as mortgaged backed securities (collateralized debt obligations) & finally the Fed agencies Freddie Mac & Fannie Mae were cooking the books to show profits when the true value of the loans was much lower.

Barney Frank & Christopher Dodd (House & Senate democrats who chaired the committees overseeing the government agencies) looked the other way, ignore warnings from Bush administration & McCain (years ago) & now it all fell apart.

The whole issue boils down to fraud, concealment, lies, & social engineering gone bad.

Folks like Obama were promoting these bad loans, by the way, so he is one of the people directly involved in creating these bad loans by intimidating banks into making stupid loans.

We can attribute this entire problem to government programs to interfere with reasonable decision making regarding who should get credit, & making it a social experiment to make money available to people who should not have borrowed any money.

The stock market crash indicates that faith in the equity markets has evaporated, & without equity (risk takers) the only way to get money into businesses & banks is through government bailouts. So many people were defrauded into investing in securities issued by all this government concealment & mismanagement, that return of equity investors is going to take time.

Add to it Obama is plans to tax equity investors higher than they r taxed now, & forget about equity risk taking. Obama is a complete fool when it comes to the economy, but he is also dealing with lots of fools who think he has ideas to solve problems. He doesn't, he is a socialist clear & simple.

Even Joe the Plumber could figure that out.

Stock markets always go down at the beginning of a recession. What causes market prices to go down? Well market prices reflect the value of future earnings of companies. In a recession, future earnings outlook becomes dim. So, the market prices correct downward to reflect this negative outlook. What will it cause? Stock prices themselves do not cause any real effect on the economy. But there may be secondary effects. Stock price correction can potentially dampen consumer spending due to negative wealth effect. i.e. Consumers feel less wealthy & might cut back on their spending. Consumer spending accounts for about 70% of the economic activity in the US.