The result was panic and market breakdowns on an unimaginable scale, bringing us frighteningly close to a meltdown of the global financial system and a second Great Depression. Thankfully, that depression never occurred. Governments and central banks around the world took extraordinary action to prevent complete collapse. But what we did get was bad enough – the deepest and most prolonged recession in generations.
And the recovery has been agonizingly slow, held back, in part, by the ongoing efforts of overleveraged households and financial institutions to repair their balance sheets. These events demonstrate both the natural tendency of the financial system to cycle through booms and busts and the potential, absent adequate supervision and regulation, for breakdowns in the financial system to threaten the global economy.