Buy on rumour, sell on Fact.
That's an old maxim of Wall Street. Another old maxim is that people generally make the right decision in the long run, but can be gripped by hysteria in the short term. The economic 'crisis' is real, but it's not due to any institutional or fundamental flaws in the American economy. It's due to the election and the success of the Iraq war.
When did you begin to see headlines of economic doom and gloom? Just about the same time you stopped seeing headlines of impending Iraq war doom and gloom. As the surge made Iraq too much of a success to report, the media began looking for an alternative story, preferably one that would aid their political agenda.
Enter the economy. We were coming off an economic boom which was widely ignored by the media, so there were negative trend lines that could be turned into ratings-grabbing, Bush-bashing "CRISIS IN WALL STREET!" headlines. We now know that there was only one quarter of actual negative growth that was quickly turned around the following quarter (a recession is two quarters of negative growth). Unemployment inched up but was still below what was considered full employment (five percent). It might have been the mildest economic slowdown between giant growth periods. Alas for America, there was an election.
By February the media had settled on their candidate, Sen. Obama, and settled on their strategy for victory: portray the past eight years as an economic depression so that voter dissatisfaction would defeat the party in power. To this end the reports of economic disaster became self-fulfilling. The media found institutions with minor weaknesses and turned them into real ones. Banks require credit on a daily basis to operate. By relentlessly reporting impending collapse of bank after bank, starting with Bear Sterns, they caused real collapses. Creditors heard the stories on their drive home from work, worried that they might be true while watching the same story on CNN that night, and pulled their money out of the institution the next morning, not wanting to be the CFO or retirement fund broker responsible for losing their firm's investment dollars.
The media got the boost for their candidate's polls while simultaneously hurting free-market principles, a win-win in their books.
The good news is that this is an emotionally created crisis. Real people will be hurt and that is a tragedy. But the election will pass. Individuals will continue to work in their own best interest. The market will go back up, so I will keep investing my 10% a month. As Sen. McCain said in the beginning, recently followed by Sen. Obama, the fundamentals of our economy are strong.
9/30/2008 7:48:00 AM