Why We Buy Into the Herd, Even When It's Not Good for Us

After IndyMac Bancorp failed, customers waited in line for hours to collect their money. The police had to be called in to quell the mob. The scenes brought to mind dire moments from the Great Depression. This time, with satellite TV trucks parked outside the bank's branches, the world watched last week as our financial system took another body blow.

On the Federal Deposit Insurance Corp. Web site, IndyMac customers were told: "If the balance in your account . . . is less than $100,000, no action is required on your part at this time." The money is insured. But Ruben and Rosalie Uranga, who had less than $100,000 in deposits, lined up anyway, along with many others in similar circumstances.

Why? Though Rosalie Uranga told reporters "Why take a chance?" many behavioral economists watching people herd in line at the bank -- or flush their portfolios of Fannie Mae and Freddie Mac stock -- sense a much deeper, even primal, response at play. I suppose the only way to say this is to just say it: People are acting like frogs.

Yes, that's a terrible program. Thanks, but I thought you were talking about the current financial situation. Never mind :^)

Well, NFIP is part of "the current financial situation," and just one aspect of the way our economic system is in flux, away from the taxpayer, and the struggle is between socialist system or a fascist system. We need to tell the Dems (who push for the former) and the RINOs (who push for the latter) that there's a third alternative--going back to sanity and focus on the taxpayer.

And the current Freddie Mac/Fannie Mae situation involves devaluing our currency and racking up public debt, with the $25 billion (AP article), for example. Don't think that's free, even if it's just increasing the debt not raising taxes directly...and don't think that three-card monte makes it go away...the taxpayer feels the burden.

I agree with Marc Faber, in that taxpayer money shouldn't be used to prop up Freddie Mac and Fannie Mae, but that they should carry the burden through stock devaluation rather than dollar devaluation. But the whole system is a mess, when we saddle taxpayers with risk that is far out of proportion.

I think you’d like this thread.

Sorry I'm so late responding. Been out of town for a few days with no TV, no cell phone and no computer.

In Ned Davis' book "The Triumph of Contrarian Investing" which I highly recommend, he cited a particular study that found that people are much more comfortable being with the herd and wrong than being alone and right.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.