The Anatomy of Fear
The technology that transmits odors and fragrances digitally is still in the very early stages of development. But on Monday, Oct. 6, the whiff of fear emanating from the television was overwhelming. James Cramer, CNBC star, ex-hedge-fund manager, mascot of the 1990s tech boom and the recent bull market, was throwing up his hands. "There's always a bull market somewhere" has long been one of his signature lines. But Cramer admitted to the "Today" show's Ann Curry that "somewhere" was now nowhere to be found. "Whatever money you may need for the next five years, please take it out of the stock market right now, this week," he pleaded. "I do not believe that you should risk those assets in the stock markets."
In the ensuing days, many investors—professional and amateur alike—took Cramer's advice. As a series of global convulsions shook markets from New York to Tokyo, and all points in between, the
stock markets plummeted, with the S&P ending the week down 18.2 percent, and down 42.5 percent for the year. Amid a broad-based, expanding credit crunch, and rising concern about fundamental economic weakness, no sector or region was immune. "The U.S. and advanced economies' financial systems are now headed toward a near-term systemic financial meltdown," says Nouriel Roubini, professor of economics at New York University and a longtime bear who has been vindicated in spades. There have been, and are, plenty of reasons for investors to freak out: the failure of banks; the demise of institutions like Lehman Brothers; the necessity for repeated, spastic (and, so far, ineffective) government interventions. Nearly every economic indicator in the past few weeks, from auto sales to employment, has been negative.
The stock of General Motors sunk to its lowest level since 1950.
Banks are refusing to lend to one another. The traditional safe havens of investment, such as municipal bonds and money-market funds, have buckled. The trumpets of leadership are so uncertain, they sound like kazoos.
"The only thing we have to fear is fear itself," Franklin Delano Roosevelt proclaimed at his first Inauguration in March 1933, amid the worst prolonged financial crisis in the nation's history. Yes, the banking system was a shambles and unemployment stood at 25 percent. But conditions would certainly improve over time, and a change in attitude would help. In recent weeks, as the comparison between today's financial crisis and the Great Depression has grown commonplace, it's become clear that fear itself is Wall Street's greatest fear. "Anxiety can feed anxiety," as President Bush put it. We see it manifested in many ways: in the plunging Dow, in spiking interest rates, in James Cramer's frenzied pleas, in the shell-shocked silence of traders on the 5:01 p.m. New Haven-line train out of Grand Central Terminal.
Markets, we are told, continually process available information to spit out accurate gauges of reality in the form of prices. That's the theory. The reality: markets are frequently inefficient, and dominated by humans, with all their frailties. "The view that people in finance are rational is wrong," says Alex Edmans, a Wharton School of Business economist who studies behavioral finance. "They're susceptible to emotion just like anyone." In recent weeks, the emotions they have been expressing include anxiety, panic, rage and resignation. In the Depression, skittish investors would cause runs on the bank by lining up on the sidewalk to withdraw cash. In the past several weeks, we've witnessed a 24/7, digital run on financial institutions as investors, banks, corporations, borrowers and lenders worry that their assets simply aren't safe. This panic has shown similar dynamics to previous ones. But due to the rapid shift in the structure of the global financial system, it's also completely different. As a result, the amount of selling and declines are far greater than would be warranted by the erosion in the fundamentals. Call it the fear factor.
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Member Comments
Posted By: Nins @ 10/30/2008 2:52:05 PM
Comment: Honestly, looking at McCain and Obama objectively (without any party affiliation or any racism) I really can't see why anybody would vote for McCain. Obama has offered a much more coherent plan to get America out of the economic disaster we are in.
Right now, most people are anxious about the economy, fearing the worst but hoping for the best.
Reality check: within 18 months YOU could be standing in a bread line. That's how bad it really is. And Obama will work actively to prevent this short term, as well as make us strong again long term. As much as I like McCain and admire his patriotism, he really is not up for the job, not now with the global markets falling apart.
Obama's economic plan can be found at:
http://www.barackobama.com/issues/economy/index.php
Posted By: 40YearR @ 10/25/2008 5:36:18 PM
Comment: Hey look, a puppy! The Wizard of Oz: Pay no attention to the man behind the curtain!
Having driven the buss over the cliff with us in it, the Rs want us to worry about "that one".
"Nowforthetruth", Fannie and Freddie paid many millions of dolllars while the Rs were in control of the executive and legislative branches, lobbying Rs only, to prevent regulation of the financial practices that caused the global financial crisis. One of the recipients of those millions is Rick Davis, McC's campaign manager, who Freddie paid while Davis managed McC's campaign.
And Freddie donated $250k to the R convention.
These facts are everywhere in the legitimate news. You can start at http://www.nytimes.com/2008/09/22/us/politics/22mccain.html and http://www.newsweek.com/id/164732/page/1 There's much more legitimate news on this.
That's right "Nowforthetruth", it was the Dems' fault!
I was a solid McC supporter and voter until I found out about who paid whom millions to be allowed to loot our economy, and until I realized how extensive and virulent is the R propaganda machine.
Ken Peterson, a 40 year republican
Posted By: Nowforthetruth @ 10/23/2008 7:40:29 PM
Comment: Obama in this video, addressing his work with ACORN litigation relating to the community reinvestment act and the failure of Freddie Mac and Fannie Mae, as they relate to the current real estate and financial crisis, states that, and I quote:
"Subprime lending started out as a good idea, helping Americans buy homes who previously could not afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories, and spread them out among investors and around the country, as well as around the world. In theory, this should have allowed mortgage lending to be less risky, and more diversified."
He further states:
"The original idea was a good one, which was, lets see if we can distribute risk more broadly, and make it easier to provide loans to people who otherwise might not be able to get one."
Listen for yourself. You cannot dispute the mans on words recorded live:
http://www.youtube.com/watch?v=Lr1M1T2Y314&feature=related
Obama in this second video is campaigning at a convention of Acorn and I believe two other "Community Activist" organizations. Ask if he will be their ally if he becomes President, Obama says, quote:
"Yes, but let me say that before I even get inaugurated, during the transition we are going to be calling all of you in to help us shape the agenda. We're going to be having meetings all across the country with community organizations so that you have input into the agenda for the next presidency of the United States of America."
See and hear it for yourself. Obama promised that Acorn and other groups like it will setting his agenda if elected:
http://www.youtube.com/watch?v=8vJcVgJhNaU
See also: http://www.newsweek.com/id/164972
Stating that Gramm-Leach-Bliley Act wasn't what caused the meltdown, and noting that "economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been."
See also:
http://boards.msn.com/MSNBCboards/thread.aspx?threadid=808692&boardsparam=Page%3d2
Below is a link to C-SPAN video clips of the Congressional hearings at roughly the time McCains attempt at S.190. to fix Fannie and Freddie. See for yourself who said what.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
See also
http://www.newsweek.com/id/164732 from this web site. (oops!) stating that Freddie Mac was spending tax payer money to target Republicans in 2005 who were trying to regulate Fannie and Freddies fraud. Democrats were not targeted, as the were all in the tank with Fannie and Freddie to kill the regulations. Hear that, the article admits that Republicans were trying to regulate Freddie and Fannie, and Democrats were trying to stop it from happening as a means to facilitate the Community Reinvestment Act.