The economy experienced an extraordinary year of volatility in 2008 with the collapse of major financial firms and huge market losses. Financial writers discuss the year's significance and the road ahead in 2009.
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The failure of major financial institutions, extraordinary government bailouts, gut-wrenching drops on the stock market, an economy in deep recession, and fears of worse.
These past few months we've used the word "unprecedented" an unprecedented number of times. And why not?
We take stock now with four writers who've been trying to keep track of and understand it all: Jim Ellis, assistant managing editor of BusinessWeek magazine; Chrystia Freeland, U.S. managing editor of the Financial Times; Steven Pearlstein, financial columnist for the Washington post; and Greg Ip, U.S. economics editor for the Economist magazine.
Well, I want to go into a number of issues, but first I'd love to go around once and let each of you pick one thing that most jumps out at you or strikes you as the most compelling thing to take from what we've been through these past few months.
Jim Ellis, why don't you start?
JIM ELLIS, BusinessWeek Magazine:
I think that one thing that really jumped out at me was just how fragile our system is. A lot of us like to think that, you know, this is something — with hundreds of years of experience, traders and investors know how to behave.
In this case, we saw that, you know, things like fear, things like complete, you know, sort of crowd mentality take over, and all of a sudden you've got a real crisis on your hands, a crisis of confidence, a crisis where psychology means a lot more than rational behavior.
Chrystia Freeland, what jumps out at you?
CHRYSTIA FREELAND, Financial Times:
I think the single event that surprised me the most was the cataclysmic impact of the Lehman bankruptcy, and that speaks to Jim's point about the fragility of the system. It was really astonishing how quickly around the world credit markets froze up, really, hours, the day after Lehman went bankrupt, and we're still living with those consequences.
GREG IP, The Economist:
I think, Jeff, what surprises me most is the breadths of the change in the attitudes towards risk we've seen among the entire economy among banks, investors, and households.
We went from a world where virtually anybody could get a loan no matter how close to bankruptcy you were, no matter how poor your collateral was, to a world where virtually nobody can get a loan unless the government is guaranteeing it for you.
And I think that speaks to how lax our whole attitude about risk had gotten in the past. And going forward, there will be a permanent change where people will pay more to borrow, and we will see a world where we will not have an economy as driven by borrowing and consumption as we've had in the past.
And, Steven Pearlstein, your turn. What jumps out at you?
STEVEN PEARLSTEIN, The Washington Post:
Well, Jeff, many people were surprised at how quickly things came unwound the last few months. I'm actually surprised at how long it's taken for this train wreck to happen.
There's been a long period of self-delusion and denial on the part of Wall Street, on the part of economic policymakers and ordinary Americans. We've been living beyond our means for many years.
The economy has essentially been in recession for a year. House prices have been falling for two years. This is something that has been available for us to see that we've been in a deep hole for a long time and we just haven't wanted to see it.