I just read a great article by Todd Wenning called the Wall Street Panic of 2008. http://www.fool.com/investing/general/2008/09/04/the-wall-street-panic-of-2008.aspx
There is so much truth in his article. But the part I want to emphasize is this. There is a difference between Crisis & Panic, and yes, we have a crisis on our hands, but it is definitely be exaggerated by panic.
“Don’t panic
Of course, no one wants to call this a market “panic.” Instead, in most places it’s been labeled a “crisis.” In fact, the term “panic” hasn’t been widely used to describe a market since the Panic of 1907 — which is unfortunate, because understanding this as a panic has something to teach us.
In the 19th century (the high time for market panics), Yale professor William Graham Sumner defined a panic as “a wave of emotion, apprehension, alarm. It is more or less irrational. It is superinduced upon a crisis, which is real and inevitable, but it exaggerates, conjures up possibilities, takes away courage and energy.”
In other words, the subprime and credit mess is the “crisis” and the “panic” is the exaggerations and doom-and-gloom language that comes with it. We’ve seen plenty of that in recent months. The major news networks have likened our current economy to the Great Depression more than 70 times in the first six months of 2008. So, please, let’s call this market by its proper name: the Panic of 2008.
Fortunately, “A panic,” Sumner continued, “can be partly overcome by judicious reflection, by realization of the truth, and by measurement of facts.”
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It’s still scary
Don’t get me wrong, some of the financial headlines we’ve seen over the past few months are downright frightening. But it’s important to not join the panic and to keep a long-term perspective on market panics, booms, crises, and everything in between.” – Todd Wenning