credit Panic

Fundoo article...................herd behaviour of human!!!!!!!!

Banks have practically stopped lending to one another. Risky assets are so toxic that the 10-year bonds of U.S. financial institutions are currently pricing in almost a 70 percent chance of default, a rate that is an order of magnitude higher than anything that has happened in the past 40 years. Investors are flooding to the exits, and taking whatever prices they can get if the reward is liquid cash.
There is little in recorded history about panics of this magnitude. Perhaps the closest analogue is the Panic of 1907, which economic historians believe was set off by massive losses associated with the San Francisco earthquake a year earlier.
Because this is a once-in-a-century event, policy makers have proceeded in an ad hoc and often confusing manner. Investors and traders haven't been able to guess the U.S. government's next move, and that has exacerbated the stampede.
The rush to search for historical comparisons has inevitably pushed analysts to the Great Depression, which Federal Reserve Chairman Ben S. Bernanke has studied extensively. Others see parallels with the Panic of 1907 or even the Panic of 1837, in which almost a quarter of chartered U.S. banks disappeared.
Searching for lessons from those lost passages of history is a painful stretch. So much has changed.
Moreover, the reliance solely on past financial panics as a guide for optimal policy is myopic. While we have very little experience with such events, we have all too much experience with panics in general. The fact is, we already know how to stop them.
We know the playbook, but we are not following it..