A benign correction of less than 10% (as of now) has lot of people losing perspective and looking for monsters in the market. It is human nature to externalize the problem and to look for monsters in the market. Even a 20% correction at this level will be a normal market behavior.
The mortgage problem has been around for years and if you line up all the perma bears and macro commentators who claimed market doom based on it for last 4 years, the line will stretch to the moon. If you had followed their advise, you would be out of market for last 4 years. There was money to be made (and lots of it) till July on long side. Now the worm has turned and there is money to be made on short side.
Now there is a clamor for Fed rate cuts to get rid of the monster in the market. Every time market takes a 5-7% dip, if Fed starts bailing out, the markets will stop functioning. In fact if the Fed cuts interest rates on Monday, the market will most probably tank, because people will start believing Fed sees some monster we can not see.
This is just a benign correction after multi year rally. It is cleaning up some of the excesses in the system. Downside moves are always more volatile and attract more emotions. The market has acted as per script so far.
From time to time the market also acts to remind people there is no easy money and free lunch in the market. The hedge funds and the big banks had been in the news before this correction, for the ease with which they were making money and for their free spending ways, so Mr Market is just reminding them , who is the boss. Some veterans had forgotten the rules of risk management, so market is just reminding them their own rules. Some had grown too big and as a result realizing it is difficult to turn a large tanker. Some dip buyers are realizing the mathematics and probability distribution of dip buying based systems. If some hedge funds go belly up, some rich dudes will lose money, which is not bad. Some investment banks will go belly up, which is not bad, the business is about risk and reward. Good methods and judgment is what should get rewarded and bad judgment punished.
There are no monsters in market. There are only, for a given time frame and capital level, speculators with well thought out methodologies and risk management strategies and there are speculators who get it wrong. As long as your strategies are aligned to the market, you make money. When the alignment breaks, you see monsters.
The markets act the way they act, you can not control the market behavior, what you can control is your response to it. Methods trump over markets and any monsters in the market.
The market is a mechanism to transfer wealth from less skilled speculators to more skilled speculators. That is nature of the game since market inception.