Twenty four months ago the Dow Jones Industrial Averageclosed at 9,033 - down 232 points for the day. The following day the index fell another 500+ points. The financial crisis was upon us.
Bear Stearns had been saved by the government, but Lehman Brothers was not.
In spite of the heretofore unimaginable nationalization of Fannie Mae and Freddie Mac, the collapse of Lehman was the final straw. A massive rescue of AIG would soon follow. Market volatility ratcheted morbidly higher until the DJIA reached 6,547 on March 9, 2009. Several money market mutual funds put a 7-14 day hold on customer funds. The entire banking system was inches from collapsing. For all that central bankers and Treasury officials may have missed, there is no doubt they performed heroic service.
In my new book, The Arrogance Cycle - Heads I Win, Tails I Don’t Lose (just submitted to my publisher, Globe Pequot), I interviewed two psychiatrists. They explained that parameters for socially acceptable behavior may vanish during life threatening situations. If you can imagine being terrified in a dark alley, your only thoughts are of getting out of the alley and out of mortal danger. Gone are thoughts of your dinner menu, car repairs, and morning appointment.