Bear Markets: 2008

As I type this blog post, the Dow Jones Industrial Average is down about 25% year-to-date, and the country is in a full-blown panic over a very serious pandemic. Unemployment numbers have shattered records due to lock downs in various states. I’ll be honest, the current situation is not pretty. However, there have been times in our country’s past where it has been very ugly. Bear markets and recessions all have one thing in common: fear. And the fear is very often justified, as is the case with the present Coronavirus outbreak. But it’s worth a trip down memory lane to recall other scary times and to remember just how frightening it has been in the past. Fear is nothing new.

For the last 10 years our economy has pretty much been on cruise control. But we all remember the disaster of the financial crisis that took place in 2008 and 2009. We remember it was scary, but very few of us actually recall the details that made it so frightening. For example: many forget that at the peak of the financial crisis (the fourth quarter of 2008) Americans went to the polls to elect a new president. The two months leading up to election were filled with terrible headlines. In the month of September alone, the US government had to take control of the two largest mortgage financing companies in the country: The Federal National Mortgage Association and The Federal Home Loan Mortgage Corporation, better known as Fannie Mae and Freddie Mac. In that same week one of the largest and oldest investment banks in the world filed for chapter 11 bankruptcy protection: Lehman Brothers. In 2007 Lehman reports assets of $600 billion. It is still to this day the largest bankruptcy in American history. The Dow Jones finished the month of September down 10%.

In October of 2008 the Emergency Economic Stabilization Act was passed and a $700 billion dollar fund was created to buy failing bank assets, this was also known as the Troubled Asset Relief Program, or TARP. The following institutions received aid: Citigroup, Bank of America, AIG, JPMorgan Chase, Wells Fargo, General Motors, Morgan Stanley, Goldman Sachs, Chrysler, and more. FDIC insurance was also increased at this time in hopes to stop a run on the banks. A week later Barack Obama and John McCain would have their final debate. The Dow Jones finished the month of October down 14%.

By the end of 2008 unemployment had reached 7%, the highest level since the early 1990s, and the Dow Jones finished the year down 33.84%. The bear market in stocks wouldn’t end until March of 2009, when the Dow bottomed at 6,547. It was a decline of 56% over a 17-month period.

We are currently dealing with a health crisis. In 2008 it was a financial crisis. The Coronavirus pandemic is a classic example of an exogenous shock to our economy. It is much different than what happened during the financial crisis. The rest of 2020 could be tough but I take solace in the fact that our economy is much better prepared to handle this type of situation than it was 12 years ago. Keep calm and carry on.