Last Updated Mar 15, 2011 11:45 AM EDT
We gotta send some money to Japan. While this is a natural and wholly laudable impulse, it may not do Japan much good. Annie Lowery on Slate points out that the oceans of sympathetic cash collected in the immediate aftermath of a crisis often overwhelm relief organizations' ability to distribute wisely. That's especially true if the donations are too targeted. According to GoodIntentions.org, the well-meaning funds that went to build orphanages in Indonesia in the wake of the 2004 tsunami, for example, build so many more than were needed that they perversely led some parents to abandon their children.
InterAction, an alliance of US-based NGOs, gently reminds on its website that "Japan has a highly developed disaster response system and the Japanese Red Cross has over two million registered volunteers," and steers would-be donors to a link called "most appropriate ways to help those affected by overseas disasters." Rather than donate specifically to Japan, you'll probably do more good by channeling your money to an international relief group like American Red Cross or AmeriCares and let the organization determine where your cash can help the most people as quickly as possible. Haiti, remember, still desperately needs help .
Here's what's going to happen All of us desperately want to know what's next with Japan's exploding nuclear reactors and the markets. But both have plenty of capacity to confound prediction. The experts who said on Saturday that a meltdown was hypothetical beyond normal reasoning , for example, now look optimistic. The market analysts who pointed out on Friday that disasters tend to be good for markets, are now 17% poorer in their Japanese stocks.
That said, there is an outer bound to what's probable. The Financial Times this morning quoted John Gittus, a nuclear risk expert in Wales, who estimated that in his worst-case scenario-a complete meltdown, which had only a 1% probability of happening-"the most likely consequence would be a few dozen people dying of radiation poisoning and a large area of land contaminated." That would be a disaster, but it's different from clouds of radioactive steam settling over the Ginza in Tokyo.
As for the markets, there is only history to go by, and it, too, suggest that the current situation will stop short of nightmarish. In the wake of the Kobe earthquake in January 1995, Japanese stocks fell 24% over the next six months but bounced back to pre-quake levels by the end of the year. As my CBS MoneyWatch colleague Mark Thoma points out, markets have a history of over-reacting to natural disasters. Horrible as they may be, floods and earthquakes don't change the fundamental financial rules. Whatever happens over the next few months, for example, Japan will still have a robust capitalist economy, a well-educated and hard-working populace and a sophisticated financial system. Enduring financial disasters-like, say, the crisis of 2008-- always have human causes.
Before you get too comfortable with that thought, though, remember that Japan isn't the only factor affecting global markets. There's still the little matters of civil war in Libya, Saudi Arabian troops in Bahrain, and the Federal Reserve's pumping money into the economy like Japanese authorities are pumping seawater into Fukushima Daiichi No. 2. Not all of those situations will resolve themselves the way you'd want.
I should have sold my stocks before this That's only true if you had too much of your money in stocks before the earthquake struck. As colleague Larry Swedroe points out, one of the certainties of investing is that disasters will happen. All you can control is the amount of risk you expose yourself to. If you had done that-if you'd diversified your money and had no more in stocks than you could bear to see drop 25% or more in a flash--then you did all you could. (As of this writing, the S&P is off 5.3% from its recent high.) All there is to do now is go back to work, write that check to the Red Cross-and stop talking to yourself.
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More on MoneyWatch:
Five Lessons from the Japan Disaster
The Social Security Trust Fund Myth
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