Word: panic
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Dates: during 2000-2009
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Financial panics--short-term, acute market upheavals that often coincide with long-term recessions--were common as the U.S. economy developed. There was the Panic of 1857 (prompted by railroad-bond defaults), the Panic of 1873 (sparked by a stock crash in Vienna) and the Panic of 1907, which started when shaky New York City banks quit lending. We learned a lot from those scares--the U.S. Federal Reserve was created in the wake of the 1907 Panic--and some believed we were too smart to panic again...
...fear is a persistent emotion, one embedded by evolution in our lizard brains. That's why there's no precise economic definition of a market panic; it's more a psychological than a fiscal phenomenon, simultaneously anticipatory (you think something terrible will happen) and retrospective (you think you have waited too long to avert disaster). Swimmers being dragged to sea in a rip current often try to swim directly to shore--against the current--and end up exhausting themselves. Panic can kill...
Years ago, the Princeton psychologist Hadley Cantril posited that social panics occur when large groups can't discern reliable sources of advice from unreliable ones. The jumbled frenzy of 24/7 information access may be making our current panic worse. It's tempting to check your investments every few minutes. But having more information, in this case, isn't necessarily better. Panic attacks end when you take a deep breath, and a step back...
...worst stock market rout suffered by the region since 1987. Hong Kong's benchmark Hang Seng index gained 3.3% after an 8.2% drop yesterday, while Korea's Kospi index rose .6%. Japan's Nikkei index fell .5% after rising in morning trading - hardly a robust recovery, but the panic selling that marked Wednesday's 9.4% free-fall dissipated, at least temporarily...
...effectively guaranteeing the solvency of the country's financial system. Britain announced a similar plan to shore up shaky banks by helping them refinance debt in exchange for ownership stakes. That move toward partial nationalization of the banking system underscores just how deep - and how apparently uncontrollable - the financial panic has become. With few tools left to central bankers seeking to calm markets, investors are likely in for more anxiety...