"By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. - and much of the world - became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in
turn led to even greater fear."
I always find it hilarious when randroids and other laissez-faire types claim that the stock market is "rational". The credit crisis sucks, it's true. But the credit default swap market is not the entire economy. And some banks going under is not the end of the world - it happened during the S&L crisis in the 80's.
But don't tell it to Wall Street. They're so busy feeding the bear that it hasn't even occurred to them that while some banks may be fucked, the rest of us don't have to be. As Buffet quite astutely observes, the fear of a bad economy is a self-reinforcing feedback loop that actually creates a bad economy, whether one should really occur or not.
The other thing this should remind everyone of, is how much of a lie you've been told about investing. We're all sold this myth that goes something like, "if you invest intelligently and manage your risks well, you'll make money." WRONG! If you do everything right, you can still get totally and utterly fucked over and lose your shirt, because the people on Wall Street are stupid, panicky herd animals. (We can assume Warren Buffet is doing everything right, can't we? I mean, this is the guy who told investors to get lost when they pressured him to get in on the dot-com boom. If there's anyone who's doing everything right, it's got to be him.)
Investing in stocks is pretty much gambling. Except instead of set rules that favor the house, the rules in investing constantly change, and basically the game rules end up being whatever a bunch of skittish morons feel like they should be at any given moment. Thus my personal rule about investing in stocks: Never, ever invest any money in stock(s) that you can't afford to entirely lose.