Re: those arguing for market 'corrections'
I'm an economist, but it's a long time since I've done any finance. Nobody with any sense should look at this as the functioning of an efficient market, and anyone arguing for "corrections" in the current climate is speaking from ideology alone at this point.
In normal circumstances, a gentle readjustment to changed facts - be that unacknowledged dodgy debt, or a good harvesft - is generally the most efficient thing to hope for. In these sorts of cases, very few economists will argue against a correction (on efficiency grounds).
For the economy to work well, prices have to have to give a good reflection of the relative demand for different goods and the relative profitability of different companies. This is what the stock exchange does really well in normal times.
Prices aren't defined by the average person, but at what economists call the "margin" or the price of the last possible trade in a market. Most of the time reflects a considered judgement of what different things are worth. Most of the time, this assuumption is at least approximately true.
However, in cases where trades are almost solely conducted on the basis of sentiment - fear, hope, or greed - the market doesn't work that well. In the late 90s, we had a bubble of irrational exuberance, and now we've got a spiral of doom. Things weren't as rosy as most people thought in 2001 and they aren't as bad as most people think now.
In times like this the market won't work that efficiently, and the big changes in a stock market are due to the inherent uncertainty as to what's going to happen next. Basically, noone can work out what things are worth, and so it's all just guesswork. If the market carries on dropping at this rate then by Wednesday evening I suspect trading will be suspended in the US for a couple of days. If it happens, don't panic too much ...
(There are also a bunch of other reasons why this isn't a good thing, and equity is important. People suffer in times like this, and whilst it's not the business of economics to worry too much about equity, few people can ignore it completely - and stay human. The costs of adjusting from one economic paradigm to another is also important, and noone knows how to calculate this!!!)
Anyway, don't panic too much - if we're all screwed, then we'll be screwed regardless of what we do. And if we're not, then it's the people who panic who get screwed first, and hurt most.