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Greed and fear are the emotions that rule markets. Fear is winning.
U.S. and European stock markets fell yesterday, even after the Federal Reserve lowered its benchmark interest rate in concert with central banks in Europe, Canada and China.
Investors are in the grip of a panic that psychologists and historians say isn't necessarily rational and may intensify. They aren't buying stocks, and more importantly, suddenly afraid they won't be repaid, they aren't making loans by buying bonds. Banks have also tightened credit. Today's fears, however, have reached an intensity that magnifies every additional piece of information and creates a vicious circle, according to Hersh Shefrin, professor of behavioral finance at Santa Clara University in California.
Wall Street's so-called fear index, the VIX, measures the cost of using options as insurance against stock-market losses. It reached an intraday record of 59.06 today.