"September and October of 2008 was the worst financial crisis in global history, including the Great Depression.” Ben Bernanke, then the chair of the U.S. Federal Reserve, made this remarkable claim in November 2009, just one year after the meltdown. Looking back today, a decade after the crisis, there is every reason to agree with Bernanke’s assessment: 2008 should serve as a warning of the scale and speed with which global financial crises can unfold in the twenty-first century.
The basic story of the financial crisis is familiar enough. The trouble began in 2007 with a downturn in U.S. and European real estate markets; as housing prices plunged from California to Ireland, homeowners fell behind on their mortgage payments, and lenders soon began to feel the heat. Thanks to the deep integration of global banking, securities, and funding markets, the contagion quickly spread to major financial institutions around the world. By late 2008, banks in Belgium, France, Germany, Ireland, Latvia, the Netherlands, Portugal, Russia, Spain, South Korea, the United Kingdom, and the United States were all facing existential crises. Many had already collapsed, and many others would before long.
The Great Depression of the 1930s is remembered as the worst economic disaster in modern history—one that resulted in large part from inept policy responses—but it was far less synchronized than the crash in 2008. Although more banks failed during the Depression, these failures were scattered between 1929 and 1933 and involved far smaller balance sheets. In 2008, both the scale and the speed of the implosion were breathtaking. According to data from the Bank for International Settlements, gross capital flows around the world plunged by 90 percent between 2007 and 2008.
As capital flows dried up, the crisis soon morphed into a crushing recession in the real economy. The “great trade collapse” of 2008 was the most severe synchronized contraction in international trade ever recorded. Within nine months of their pre-crisis peak, in April 2008, global exports were down by 22 percent. (During the Great Depression, it took nearly two years
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