Below Belief

A useful summary of why and how the credit crunch came about…

Putting politics and rhetoric aside, today’s credit crisis is the result of decades of increasingly lax
mortgage lending coupled with years of swelling trade and national deficits, a gross lack of oversight
both on and off Wall Street, and a cocktail of greed and ignorance that spanned the globe.

And what to do with your investment portfolio? Cry? Sell out now and take the losses? Keep everything and hope that 10 years down the line this was just a blip in an upward slope?

In three of his annual letters to shareholders (1992, 2001, 2004), Warren Buffett has said, in some fashion:

It’s only when the tide goes out that you learn who’s been swimming naked.

Buffett was speaking specifically of insurance and derivative businesses; but, the phrase could easily apply to the stock market as well. When the stock market is soaring, everyone is in up to their chins–splashing around and having fun. When it drops–as it always does–you quickly see who was prepared…and who is desperately running to deeper waters, hoping to cover themselves.
More often than not, naked swimmers drown.

http://www.fwallstreet.com/blog/33.htm