Market fear vs. reality

October 10, 2008 5:34:19 PM PDT
Across the country, people are worried about their financial future as the economy continues a downward spiral.But, is the fear justified?

Many experts say rather than a recession, we are in a "fearcession."

They say fear and mistrust among the banks and big lenders are generating much of the psychology that are generating these panic sell-offs.

President Bush tells the world not to give in to the pressures of panic and fear, saying Washington's rescue plan will kick in eventually.

"Anxiety can feed anxiety, and that can make it hard to see all that is being done to solve the problem," the President said.

The experts say the devastating losses in the markets are a chain reaction, a herd mentality combined with a credit market where lending institutions don't trust each other.

"When people are uncertain about stocks, they like cash," said economist William Dunkelberg. "So people start to think 'If prices are going to keep falling, I better cash out now,' and, of course, that results in a cascade."

Classic free marketeers say, stay the course.

"Remember we had the dot com crash, and it wasn't long until we reached the peaks of the dot com boom," Dunkelberg said. "This is the way the market goes, it's never in the right place, it's either too high or too low, but if you hang on for the long run you do well."

The market's fear gauge, the volatility index, reached its highest level Friday.


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