When we say that a market fails, it is usually referred as a market crash, meaning, the value of stocks drops dramatically across the board. Instead of just one corporation being affected, the stocks of many or all corporations will drop too. This will cause investors to panic and many people will rush to sell their stocks. The more people who are selling their stocks the lower the stock value falls which will make the problem worse.

Everyone will in turn be affected by a market crash. If stock market takes a downturn this will result to job loss, slow GDP growth, slow economic growth, and devastates consumer confidence. Many companies and investors are making less money and go bankrupt, companies are closing and people are buying less. This is like a chain reactions and affects every aspect of the economy and will also cause overall economic depressions. Since the crash follows a bull market, many people feel panicked because of the sudden economic downfall and will become more cautious with their money which results to economic growth being hindered.

You will also find many more information about this topic on the following sites:
http://www.marketoracle.co.uk/Article7198.html
http://business.solveyourproblem.com/stock-trading/what_is_stock_market_crash.shtml

I think your first step should be to ask yourself, "What is a market?" We have turned the "market" into some form of a financial slime mold. How often do people relate the financial exchanges of the market to actual physical productivity? Originally founded in 1792, the New York Stock Exchange was based on companies that produced an actual physical good or provided a necessary service.

As long as we continue to treat money as if it has its own intrinsic value, we will continue to see the abuse of the market. Money is just paper and ink, it has no value. It is only valuable when exchanged for actual goods or services. We must return to an economic system based on production, where labor and scientific, technological development come first and money comes second.

As far as what happens when the markets don't work, remember what happened on Black Monday? Are we there yet?

According to ja.org, it was reported that "when stock prices rise, consumers feel wealthier and often are
more confident about the future; accordingly, they will increase their spending, contributing to strengthening of the economy. Conversely, when stock prices fall considerably, consumers feel less confident and less wealthy, leading then to spend less. The slowdown in spending contributes to a slowdown in the overall economy."

For complete details on understanding the Stock Market fluctuations, kindly visit the link below:

http://www.ja.org/files/position_papers/UnderstandingStockMarket.pdf