Investors throughout China are waiting for the government to step in and buy more stocks so they can close out their positions, but many are losing hope.

Yang Cheng, a farmer in the remote town of Panzhihua in southwest China, was one of many Chinese citizens who started buying up stocks after the government began promoting equity investment as part of a larger plan to expand the country's economy.

"When the market climbed to 4,000 points, I realized the risks were pretty high. However, public opinion on government policies affected my judgment," he told CNBC.

But after sinking his entire life savings—$164,000—and his relatives' money into shares of a local mining company, he lost everything. Not only that, but Yang's brokerage convinced him to borrow more than $1 million to buy stocks on margin. He now owes roughly what he originally invested after liquidating his portfolio.

Like many Chinese, Yang traveled to the office of the leadership and stock market regulator in Beijing to seek help, but was turned away.

"I don't know what to do. I trusted the government too much. I won't touch stocks again," Yang said. – CNBC, July 28, 2015

When farmers plunge their life savings into mining stocks at 6-to-1 leverage, it is fair to assume a bubble has formed that will eventually pop. That is certainly the case in China right now. Farmers like Yang Cheng made the mistake of believing their government. We suspect he won't make that mistake again.

Financial markets help a country's economy by, among other things, providing price discovery. The share prices established by buyers and sellers give everyone else important information on the value of listed companies. Yet the information loses its value when non-rational investors intervene.