It was not histrionic.AlohaJoe wrote: ↑Tue Dec 11, 2018 8:51 pm I was 100% stocks. Didn't care about the crash. Went to work. Lived my life. I wasn't going to use the money for several decades anyway. Found the "maybe this is the end of modern economies" stuff histrionic. I was trying to sell my house at the time which meant it took 6 months and I ended up selling it for the same exact price I had paid several years before. I didn't care about the price but taking six months was annoying.
We were looking at a situation where most countries in the developed world would have had to nationalize their banks. Citi and Deutsche in particular were even more vulnerable than we thought. The banking system proved to be woefully undercapitalized. RBS was one of the world's top 5 banks by assets, briefly, and it was bust. (I have actually read somewhere that it was the *largest* bank by assets in the world, but I don't have the reference).
It was the global margin call. Liquidity just vanished - major corporations were unable to roll their Commercial Paper - the likes of Ford and GE were ringing up the US Treasury and saying they would have trouble paying their employees and suppliers. Financial institutions were so interconnected that few of them would have survived without state aid. What happened to Ireland and Iceland (nationalization of the leading banks with the state taking on the debts of those banks) would have happened in other countries too - UK (where it did de facto happen), US, Germany in particular (but also France, Italy and others).
That would have catapulted us back to a world not seen since the 1930s & 1940s of intense state control of finance.
World trade fell faster in Q1 2009 than it did in 1931. It was apocalyptic. Basically the entire supply chain of the world stopped ordering. Oil dropped from $150/ bl to $40/ bl - just as a measure of how far demand fell. There was a serious risk of 1930s style unemployment and a downward spiral.
We were lucky. The UK had an unusually realistic Chancellor (Minister of Finance) and a Prime Minister who had been Chancellor for 10 years, surrounded by intelligent advisers who he trusted. The US had an able Sec of Treasury and a Chairman of the Federal Reserve who had spent his professional life studying the lessons of Japan (which made all the mistakes in the early 1990s) and the 1930s. The US President simply said "this sucker's going down" and stood back and let them do their jobs.
The collective action by Treasury and Central Bank authorities stopped the meltdown. And the coordinated fiscal stimulus across the world agreed in March 2009 restored orders and business confidence.
We still had the Euro crisis post that (Greece and the PIIGS). Europe embraced austerity at just the wrong moment and is still paying for that.
But the initial reaction was precisely the one historians have argued should have been tried in 1929-31 (to be more precise, historians are clear why the international architecture and domestic politics prevented it from being tried). You might call it John Maynard Keynes last gift.
Adam Tooze has written an excellent (and voluminous) history of the Crisis. Highlighting the importance of China going on the infrastructure spending spree of all time, and the important role of the Fed in funding the Eurodollar market (European banks get their dollar liquidity from the Fed, in effect).
I think the data says that all of the world's economic growth in the 18 months post the Crash was, net net, Chinese infrastructure and other spending on physical assets. Beijing - the last Keynesians. Who knew?