So What if the Sky Is Falling – Just Duck & Cover

When you watch a horror movie, there's invariably a part in the beginning when life seems perfectly normal. People commute to work. Kids go to school or play in parks. A cat sits patiently on a porch with her eye on a bird -- only to be frightened away by a dog that sneaks up the rear stairs. You get the picture.

Or focus on reality. Hear your kids arguing about who gets that new toy or the keys to the car? Hear your spouse asking why you did or did not do any of a number of things? Hear your boss asking that same question he or she asks nearly every day? Good.

Because all that normalcy is keeping the lid on that scary, gurgling beast that's rumbling beneath the surface -- that thing that later emerges in the movie. It's always there, as the market is showing us. But it's important to remember a few things.

Yes, life is tougher in our world of lower-paying jobs (or no jobs at all), failing investments, shrinking 401ks, fears, worries, and uncertainties. But if the panic seems to be escalating, try to tune it out a bit -- drown out the noise of financial markets worldwide crashing. Live your life.

Though we clearly have reasons for concern, we need to be asking how we fix this mess we're in, rather than simply reveling in the panic.

Panic is of critical importance in many areas of human and animal behavior, notably in the context of economics, according to researchers from the New England Complex Systems Institute in Cambridge, Mass. And here is the thing about panic: Sometimes it is caused by a specific external threat, but more often it results from self-generated nervousness. In a report entitled "Predicting Economic Market Crises Using Measures of Collective Panic," researchers found self-induced panic is a critical component of both the current financial crisis and the large single-day market drops in recent years.

It has long been thought that market crashes are triggered by panics that may or may not be justified by external news. This new research indicates that it is the internal structure of the market, not external crises, which is primarily responsible for crashes. The number of different stocks that move up or down together is an indicator of the mimicry within the market, how much investors look to one another for cues. When the mimicry is high, many stocks follow each other's movements -- a prime reason for panic to take hold.

The bottom line: Even if you feel the urge to panic, don't. The fact is, individuals and institutions are remarkably resilient. And panicking does not always result in the best decisions.

Feel like doing something rash, like liquidating your entire portfolio? Don't. Do something less extreme, and wait a few days to see how the market sorts itself out. Sometimes making decisions at the most volatile point in time -- and during a state of panic -- results in bad decisions.

Remember when you had your first "real" job, and you took your first vacation? In the back of your mind, you might have expected the place to fall apart in your absence. But when you got back, you found most people hadn't even realized you were away.

Life and work and financial markets go on, whether you're going on vacation or standing on the edge of a cliff watching what seems like more than 200 years of perfectly workable capitalism crumble like the foundation of a California home in a mudslide.

The financial markets are a mess, but they aren't dead. They'll recover, if not sooner, then later. They may take different forms and structures. Laws may be created or rescinded. (Remember, the Federal Reserve System was born of a financial crisis, the Panic of 1907.) And yes, most of us will come out of this thing poorer than before -- unless we had the foresight to buy gold or invest in the antidepressants whose sales are likely spiking right now.

But life has always been a gamble, and having a proper size nest egg was never a guarantee for happiness. So suck it up.