Hysteria Makes Financial Crisis Infinitely Worse

No doubt the country is in the midst of a financial crisis within its banking and loan sector. But the hysteria that follows such a crisis is the thing that has the potential of sending the entire nation and its markets into a free-fall.

A few bank failures is not enough to propel the country into a depression. As long as there are enough banks that have followed sound business principles and kept enough cash in reserves to cover any potential losses in loans, the failure of some banks, even large ones, is not going to spell disaster for the economy.

But if Americans descend into hysteria and panic, a problem that should correct itself can become a national disaster. If Americans view the failure of Lehman Brothers and the buyout of Merrill-Lynch by Bank of America as signs they should 'withdraw all their money out of banks,' then what should be nothing more than a market correction--getting rid of companies that engage in bad business practices--can quickly turn into the dreaded 'domino effect.'

Currently there are thousands of safe banks that engage in conservative business principles. And, if customers who deposit more than $100,000 are careful to spread their deposits over several banks so that none go over the $100,000 limit, then those funds are also insured by the federal government.

For those customers who are not sure of their bank's business practices, there are ways to investigate that bank's assets vs. its liabilities. To be on the safe side, customers should look for a bank's assets to far outweigh its liabilities. These are what we call 'conservative banks,' and they are the safest.

Americans should not simply be resigned to the 'inevitability of a national financial meltdown.' There are ways this doomsday scenario can be avoided, and one way is to refrain from allowing oneself to engage in hysterics from which rarely anything good comes.

There is no good reason for a 'domino effect' as long as Americans keep a clear head and avoid the mistakes that panic inevitably produces.