Crisis To Confidence, Today, we’re hearing about – and experiencing – historic
volatility in our financial markets. Market volatility of this magnitude is upsetting, but you don’t have to let emotions guide your financial decisions. I’m reaching out to you because I know you’re concerned, and I’d like to offer information and ideas.
New research suggests the way you react to a financial crisis may determine your long-term success as an investor. How did successful investors respond to past crises? The answer may surprise you. While successful investors remained steadfast, the most successful investors invested more during financial crises. (Source: Ned Davis Research and Wiesenberger, 10/08).
A Crisis That Began With Good Intentions
The current financial crisis was born when the U.S. government pressured
mortgage giant Fannie Mae to ease credit so more people could afford mortgages. In addition to lowering the requirements for down payments, Fannie Mae increasingly issued subprime loans to borrowers who could least afford them. Many other lenders followed suit, especially as the economy strengthened and home prices skyrocketed. Meanwhile, these subprime mortgages were being packaged into complex financial instruments that were bought and sold as securities. When housing prices across the nation plummeted, these securities began to lose value, and soon
there was no market for them. With literally hundreds of billions of dollars tied up in these illiquid securities and access to credit tightening rapidly, the financial system nearly ground to a screeching halt, resulting in government intervention to prevent a worldwide credit crisis.