The 2008 financial crisis will have a place in the history books and be talked about for centuries. If you invested through it, congratulations.
We all remember what it felt like to see the Dow Jones fall 50%. I sure do, anyway.
But what was it like from the perspective of a financial historian? I asked David Cowen, CEO of the Museum of American Finance. Here's what he had to say (transcript follows):
Morgan Housel: During 2008, did you respond with less of a shock than others? Do you think knowing that this has happened before -- we've had crash after crash after crash -- whereas to Main Street, it sort of felt like this is a one-in-a-century event?
David Cowen: You know, that's interesting because you're asking me personally, and I was actually trading at that time and had to live through that moment, and so I wasn't thinking with my financial historian's hat, but when you're in the moment, just trying to survive and do the right things in that context. So no, I didn't have my financial historian's hat on the way I do at other times. But then once you get through that moment, you start to contextualize it. You know that in 1792, at the beginnings of our nation, we had a financial panic; 1819 we had a panic -- 1837, 1857, 1870, 1873, 1890s, et cetera, et cetera. 1907, another famous panic. 1929, as I keep going on and on. So yeah, when you step back from it, but on those days and those moments you're in the fight.
But what I would say is when there's a central regulating monetary authority like the Federal Reserve -- and in our periods of history, the first bank in the United States, 1791 to 1811; second bank in the United States, 1816 to '36 -- that it's much more mitigated. There are much less of these type of panics when there is a central regulating monetary authority to check the activity to the best extent they can and then be lender of last resort to assist in times of need.
Morgan Housel: If we have fewer crises within the central-bank model, are they deeper and more severe when they happen? There have been people who have made that argument.
David Cowen: I don't necessarily think so, because let's take a look at the 1987 crash. We quickly rebound from that, right? The Fed, Greenspan injects a lot of liquidity so there are times they can stem what might have been exasperating or exasperating circumstances. So no, I don't think so, though we're in a very difficult one right now. Ben Bernanke's a great student of the Depression, but most economists, I think, would say if they didn't take the actions they did in 2008, we would have had a much more severe downturn than we actually did.
This article was originally published as Trading Through the 2008 Crash From the Perspective of a Financial Historianon Fool.com
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