Promise, no more two posts in one day, but I thought this was an amazing document. It's an excerpt from a Reuters wire story on the "herd mentality" of investors making a run on banks and stocks:
In this case, running with the herd may not make good sense, said Paul Zak of the Center for Neuroeconomics Studies at Claremont Graduate University in California.
"There is this sort of herd mentality over-reaction," Zak said in a telephone interview.
"One of my colleagues actually pulled his money out of Washington Mutual a few weeks ago. He ought to know better."
The U.S. government has taken over mortgage finance companies Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc has gone bankrupt, giant savings and loan Washington Mutual failed and Bank of America Corp bought Merrill Lynch & Co Inc.
The U.S. House of Representatives rejected a $700 billion bailout on Monday, sending stock markets crashing globally.
Zak said the reactions are illogical. "I see no evidence that a depression is coming but it seems like people are behaving that way," he said.
The reason is evolution, Zak said. "We are really hyper-social apes. We learn almost exclusively from each other," he said. "Gossip is really important because it is another way that we learn socially. Separating out rumor from fact is difficult, particularly in these complex markets."
Doesn't it somehow make you feel better that someone-- a scientist, who has the moral authority today of yesterday's epic poets-- knows what's going on? We are apes, but we have evolved the ability to be logical. So just be logical, and everything will be fine.
My question is, if Wachovia's down to a dollar something a share, shouldn't we buy it? It was $50 a share last year. If it goes up a dollar something, we double our money. That seems like a no-brainer.
Or maybe we are on the brink of disaster, and next week we will be trading goats for sugar, if there is any sugar to be had. Well, in that case, it won't make any difference whether we have money in our coffee cans or not.