Welcome to Panic 2008. I'm finding it useful to think of this as a bank run -- much of the world has its savings in stocks and bonds, and just as in a bank run, when depositors lose faith in the underlying institution, out go the deposits.

This isn't to trivialize the problems in the global credit markets -- although we see panic there too, albeit of a slightly different sort -- or in the world's economy. Those are real, and extremely serious, but they are not in and of themselves the drivers of the extremely broad-based panic selling we've seen in recent days.

As New York Times columnist Paul Krugman said, people are selling because the prices are going down. At some level, it really is that simple.

People are selling -- bailing out of hedge funds and mutual funds -- because they've lost confidence in the idea that the stock market will go back up. The funds in turn are selling their holdings to cover those redemptions. And because those holdings are, in aggregate, drawn from every corner of the market, every corner of the market is getting clobbered.

This happens in bear markets. When enough people become fearful, lose faith, and sell, it's called capitulation. Capitulation is generally followed by the bottom -- the low point, the end, the quiet moment after the anvil has landed on top of Wile E. Coyote and the dust cloud is drifting in the wind.

And by definition, the bottom is followed -- sooner or later -- by stock prices going up. The money on the sidelines reenters the stock markets looking for bargains. Prices start rising, and people start buying when prices are rising. It may take a few rounds of false starts before enough people really trust the trend, but eventually things get going.

Remember what I said about bank runs and losing faith in "the institution"? My sense here, on Friday afternoon, is that the institution people have lost faith in is "the market," rather than the individual companies whose stock they're selling.

There are exceptions, of course -- General Motors (NYSE:GM), one of the hardest-hit stocks yesterday, is genuinely in grave trouble right now -- but have the fortunes of McDonald's (NYSE:MCD) or Walgreen (NYSE:WAG) really deteriorated 15% or 20% in the last week?

I don't think so. I think those are panic discounts. And unlike with a bank run, the market isn't in real danger of going out of business.

Our challenge, today and in coming days, will be to find more companies like McDonald's and Walgreen.

Wait. How can you talk about buying stock at a time like this?
Here are some things I believe as of this moment. To be clear, I'm thinking of this as a long-term investor, someone who invests mainly for retirement, someone for whom retirement is probably 30 years away. Your mileage may vary.

  • Total global collapse is not in the cards. Yes, I read Nouriel Roubini and other experts who have made dire predictions every day. Yes, I take them seriously. But I continue to think that global governments will get this figured out and credit markets will start to ease before truly awful consequences take hold. We're in for a recession, not anarchy.
  • The market won't go to zero. See above.
  • The bottom is near. That doesn't mean that the recovery is near, only that we'll be through the worst of the selling before too long. In fact, we may be through the worst of it now.
  • It's too late to sell. You can read why here. Briefly, even though we may not be at the absolute bottom, and even though it may take years for the S&P 500 to hit new record highs, stocks are likely to be above these levels relatively early in the recovery. There's nothing much to be gained by selling at this late date, and there's a lot to be lost.
  • Five or ten years from now, prices will be a lot higher. Not all prices, of course -- some businesses will merge or fail or be substantially crippled by the recession. But I think the best firms, the long-term holds, the great old-line companies like Johnson & Johnson (NYSE:JNJ) and the resource giants like Alcoa (NYSE:AA) and the top retailers from Amazon.com (NASDAQ:AMZN) to Wal-Mart (NYSE:WMT) will almost certainly weather this storm and emerge in a very strong position.

And right now, those companies are on one heck of a sale, as are lots of others. But where are the very best values right now? The Fool's Inside Value team knows, and they're letting readers know with solid recommendations for new investments in the midst of the market's chaos, backed with up-to-the-minute commentary and discussion. You can read it all and join right in for free (how's that for recession pricing?) with a 30-day trial.

Fool contributor John Rosevear owns shares of General Motors, but not too many. He has no position in the other companies mentioned. Johnson & Johnson is a Motley Fool Income Investor selection. Wal-Mart is a Motley Fool Inside Value pick. Amazon.com is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.