If you’re into business news, you’re going to see this price-weighted index, whose name rhymes with “cow” and “sow,” mentioned quite a bit. Now, a “sow” is another name for a female bear, and a “cow” is a female bull. You’ll see both animals reflected in the Dow, which tracks the stock performance of 30 big American companies.

When the Dow goes down, she goes “sow.” And when she goes up, they call her “cow.” In official-speak, they call those two states “bear” and “bull.”

The point is that bears hibernate and bulls charge. When the Dow goes down and her stocks lose value, she’s acting “bearish.” When she charges full speed ahead, with stocks “rallying,” or selling for higher and higher prices, she’s “bullish.”

People use the Dow like a community message board for their wealth. When she goes down, it’s a signal for people to get antsy and nervous. When she goes up, people throw kegger parties.

Sometimes she’s up and down every day. That’s when people get confused. They like bulls, they like bears, and they don’t like uncertainty.

Newspapers and TV shows like to talk about her like she’s the final word on the state of the economy. If the Dow goes down, everyone goes broke.

But is that true? The Dow is made up of only 30 companies. Those 30 companies below make up 25% of the value of all 3,000 stocks traded on the New York Stock Exchange, a big building in New York where people dress up in ties and jackets and yell really loudly.

See for yourself what the Dow is made of:

Banks and Lenders:
American Express
Bank of America
Citigroup
JPMorgan Chase

Other companies:
IBM
Intel
Microsoft
Hewlett-Packard
AT&T
Verizon
Chevron Corporation
ExxonMobil
Home Depot
Coca-Cola
McDonald’s
Walmart
Kraft Foods (replaced AIG in September of this year)
3M
Alcoa
Boeing
Caterpillar
DuPont
General Electric
General Motors
Johnson & Johnson
Merck
Pfizer
Procter & Gamble
United Technologies
Walt Disney

Notice that right now, the banking sector is in big trouble. And 13% of the Dow is made up of banking companies.

What is the Dow really saying when she drops? It’s saying that a dead banking sector + a big chunk of the companies who use those banks have falling stock. It’s saying 25% of stock traded on the NYSE is falling in value.

People act like it’s the end of the world when the Dow Jones Industrial Index drops. Maybe it is, but if you’re the kind of person who likes proof before they panic, don’t use the Dow Industrial as your only source of information.

Look to the Dow Jones Transportation Average and the Dow Jones Utility Average for the big economic picture.

If you follow all three, and they’re all going sow, it’s time to think about crying.

The credit default swap market is a $45 trillion dollar market in which each vendor sells special I.O.U. notes instead of family heirlooms and T-shirts from China. The special I.O.U.s, also known as credit default swaps (CDSs) aren’t actually good for any money. Instead, they make sure that you don’t lose any money when other people don’t pay out their I.O.U.s.

When you buy a CDS, you pay the person who sold it to you a regular maintenance cost, or premium. If someone who owes you money runs up to you and says they can’t pay up on their I.O.U., no problem. The person who sold you the CDS will hand you money to cover the loss. The CDS is smart, because it stops you from losing too much from peoples’ bad I.O.U. slips.

Not sure who to buy a CDS from? Don’t worry. You can buy or sell CDSs to and from invisible people, too. There’s no need to identify the person who will actually pay you when someone defaults on a loan. The money always appear from somewhere when your I.O.U.s default.

If you get unlucky and someone tells you they can’t pay their I.O.U. slip, look for the person who issued the CDS. If you can’t track them down, simply stand in place and start screaming really loudly. Someone wearing a government tie will run up and hand you a suitcase full of money. Hold onto the money a while–don’t loan it to those schmucks who couldn’t pay back their I.O.U.s–and you’ll be fine.

If the man with the government tie looks busy, and you get scared that maybe he’ll forget about you, there’s an easy workaround. Pack all of your CDSs in a suitcase and write the word “Assets” on the outside with a Sharpie pen.

Find other people around you who look worried. You can identify them by their wide-eyed expressions and the stacks of CDSs they’re clutching in their fists.

Offer to buy them out with your suitcase labeled “Assets.” The more people you buy out with your “Assets,” the more likely you are to have the man in the government tie run your way when it’s your turn to stand in place and scream. For more details on how to accomplish this, please refer to Bank of America and Citicorp.

Coming up next time: The Financial Bailout Plan.