Don't want to post the whole thing, but I love hearing TMQ's take (link below) on such matters.
An example of the exaggerated crisis claim is the assertion that Americans "lost" $2 trillion from their pension savings in the past month, while equities "lost" $8 trillion in value. "Investors Lose $8.4 Trillion of Wealth" read a Wall Street Journal headline last week. This confuses a loss with a decline. Unless you cashed out stocks or a 401(k) in the past month, you haven't "lost" anything. Nor have most investors "lost" money, let alone $8.4 trillion -- crisis-mongering is now so deeply ingrained in the media that even Wall Street Journal headline writers have forgotten basic economics. People who because of financial need have no choice but to cash out stocks right now are really harmed. Anyone who simply holds his or her ground with stocks takes no loss and is likely, although of course not certain, to come out ahead in the end. During the housing price bubble of 2003 to 2006, many Americans became much better off on paper, but never actually sold their homes, so it was all paper gains. Right now many Americans holdings stocks or retirement plans are much worse off on paper, but will be fine so long as they don't panic and sell. One of the distressing things about last week's media cries of doomsday is that they surely caused some average people to sell stocks or 401(k)'s in panic, taking losses they might have avoided by simply doing nothing. The financial shout-shows on cable tend to advise people to buy when the market is rising, sell when the market is falling -- the worst possible advice, and last week it was amplified by panic.
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