First, we outlive the fear...

One of the remarkable aspects of this recession, has been the severity and speed of investors and consumers as they react to each new (and usually grim) announcment. 

This is a genuine fear response.

Unfortunately, commodities were followed by global stock markets. As the summer gave way to autumn, consumers and investors watched in shock as the Hang Seng Index on the Hong Kong exchange plunged as much as 59% from its most recent high, the Dow Jones Stoxx 600 of Europe collapsed 46%, and the Icelandic ICEX rolled off the table, losing 77% of its value in one day on October 14 and 93% by the end of that week. In the U.S., the S&P 500 lost 44% and Nasdaq 45%, much of it bitten from retirement accounts and small traders. All told, estimates of the amount of wealth chopped from global equities are currently around US $31 trillion.
Seasoned traders who withstood the crash of 1987 have admitted they’ve never seen anything like this. The worldwide collapse of commodities, stocks, currencies, and just about every other investment vehicle out there has brought uncomfortable images of 1929 to the forefront of everybody’s minds.
Is it really that bad?
It’s a truism that investment markets are driven by two emotions: fear and greed. However, since the Lehman bankruptcy that’s been changed to fear and terror.
As investors realized no vehicle was immune to the downturn, they panicked, yanking their capital from anything riskier than a mattress and repatriating funds to the safe havens of Japan and the U.S. Interestingly, this flight to quality has not generally included Switzerland, the other traditional port in financial storms, perhaps because of Swiss banks’ exposure to emerging economies, the ones currently being supported by the World Bank and International Monetary Fund. [More]

I have been suggesting to audiences of farmers that not only is this overreaction to be expected, it is inevitable.  It's all we have to choose from for emotional response.

Sometimes, the human brain can seem astonishingly ill-equipped for modern life. Our Pleistocene olfactory cortex craves glucose and lipids, which makes us vulnerable to high-fructose corn syrup and Egg McMuffins. We've got an impulsive set of emotions, which makes us think subprime mortgages are a good idea. And so on.
If I could only fix one design flaw, however, I'd focus on our stress response. We're stuck with a mind that reacts to the mundane mundane worries of modern life - a falling stock market, a troubled marriage, taking the SAT - with a powerful set of primal chemicals that, once upon a time, were reserved for moments of "fight or flight". In other words, we treat everything like an existential threat, which is why a multiple choice exam can leave us panicky and breathless. The hypothalamus, it turns out, is an excitable drama queen, suffusing the bloodstream with adrenaline and cortisol whenever things get a little uncertain or unpleasant.
The problem with this blunt reaction to stress - it's too often all or nothing - is that, as I've written numerous times, chronic stress is really bad for you. It causes chronic back pain, weakens the heart and kills brain cells. Unfortunately, the miserable economy seems to making things worse:

Anne Hubbard has not lost her job, house or savings, and she and her husband have always been conservative with money. But a few months ago, Ms. Hubbard, a graphic designer in Cambridge, Mass., began having panic attacks over the economy, struggling to breathe and seeing vivid visions of "losing everything," she said.
She "could not stop reading every single economic report," was so "sick to my stomach I lost 12 pounds" and "was unable to function," said Ms. Hubbard, 52, who began, for the first time, taking psychiatric medication and getting therapy.

Anne's sad story captures a reality of depression that's often overlooked. While the mental illness is typically defined in terms of its emotional symptoms - this led a generation of researchers to search for the chemicals, like serotonin, that might trigger such distorted moods - researchers are now focusing on more systematic changes in the depressed brain, such as reduced neurogenesis and increased cell death. What causes this neurodegeneration? You guessed it: chronic stress. Those same hormones that make you alert and escalate your pulse can also damage the brain. [More]

But the tiny bit of good news is our brains can only keep this up for so long.  We are already adapting to wild commodity price swings (15 cents in corn doesn't provoke the same gut-churning for me as it used to, for example) and our brains are trying to set new higher trigger points in order to lower the chemical overload on our cardiovascular and other systems.  We simply cannot stay terrified for really long periods.

Perhaps this intrinsic, internal progression of adaptation is being played out as slightly less aversion to risk, and even a relative boredom with investing safely for paltry returns.  I think so, and hence look for a change upward in the markets driven less by outside factors and more by brain chemistry trying to right the ship of self.