The Global Financial Crisis — 10 Years Later
“And the merchants of the earth weep and mourn over her, because no one buys their cargoes any
more — cargoes of gold and silver and precious stones and pearls … for in one hour such great wealth has been laid waste!” (Revelation 18:11, 12, 17 NASB)
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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
— perhaps exaggerated — claim in November 2009, one year after the meltdown. Looking back a
decade after the crisis, we see the scale and speed with which global financial crises can happen in our technologically-advanced world. The theme text suggests that the establishment of Christ’s kingdom on earth will be preceded by a global financial and economic meltdown for which there will be no earthly solution.
The Panic of 1893 was a serious economic depression in the United States that began in that year.
Similar to the Panic of 1873, it was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures. Compounding market overbuilding and the railroad bubble, was a run on the gold supply (relative to silver). Until the Great Depression of the 1930s, the Panic of ’93 was considered the worst depression the United States had ever experienced. The Great Depression cited as the worst economic disaster in modern history, was far less synchronized than the crash of 2008. Although more banks failed in the Great Depression, their decline was spread over a four-year period and impacted far fewer assets. In 2008, the scale and speed were rapid, with capital flows declining by 90 percent between 2007 and 2008.
The 1970s featured real estate credit crises in both Britain and the US and what was then called “the
Great Recession.” The 1980s brought the global crisis of imploding loans to the governments of less developed countries, as well as the failure of the remarkable total of 2,808 US financial institutions between 1982 and 1992. In the 1990s, there were a series of international financial crises: Mexico, Russia and Asia, as well as the creation of the egregious US tech stock bubble, which shriveled early in 2000.
The 2000s brought the collapse of multiple national housing bubbles, a European sovereign debt
crisis and another “Great Recession.” The financial historian Charles Kindleberger, having studied four centuries of banking events, concluded that financial crises occur on average about every 10 years. In a similar vein, former Federal Reserve chairman Paul Volcker wittily remarked that “about every 10 years, we have the greatest crisis in 50 years.”
The Financial Crisis of 2008
The 2008 crisis rapidly grew into a worldwide recession, including the “great trade collapse.” Within months, global exports fell by 22 percent, while the same decline took nearly two years in the Great Depression. Over the 2008-2009 period, 800,000 people per month in the U.S. were losing their jobs. When 2015 was ushered in, over nine million American families had lost their homes to foreclosure. This was the largest forced population movement since the Dust Bowl of the 1930’s. In Europe, failing banks and failing public finances nearly split the Euro-zone.
The collapse could easily have devastated both the U.S. and European economies had it not been for the intervention by the U.S. officials at the Federal Reserve to halt the global bank run. Contentious politics and the split between the United States and Europe over managing global finances have obscured the heroic rescue that took place.
When U.S. Treasury officials tried to arrange the sale of the failed investment bank Lehman Brothers
to the British bank Barclays, British Chancellor of the Exchequer Alistair Darling refused to “import”
what he called the U.S. “cancer” despite the fact that British banks were already stumbling.
German finance minister Peer Steinbruck declared the crisis an “American problem that would cause the United States to lose its status as the superpower of the world financial system.” French President Nicolas Sarkozy announced the U.S. style was “finished.” Confident predictions that this was a U.S. problem were erased when it was discovered that European banks were deeply involved in subprime loans and their business models depended on successful dollar funding of loans. The first big bank to fail spectacularly was Britain’s Northern Rock. Its business model relied on wholesale borrowing from around the world. More banks than imagined were holding bad assets.
Wholesale lending came nearly to a halt.
As a result, the European Stability Mechanism (ESM) was established in 2012 as a “permanent”
firewall for the eurozone, to safeguard and provide instant access to financial assistance programs for member states of the eurozone in financial difficulty. Today, reform of the ESM is at the center of a wider debate on the future of the Economic and Monetary Union (EMU). President of the European Commission Jean-Claude Juncker delivered a staunch defense of the euro, “The future of the European Union is the future of the euro, and the future of the euro is the future of the European Union as a whole,” Juncker said in his keynote speech at the Brussels Economic
Forum in the EU capital.
Financial writer Adam Tooze recently wrote, “Given what has emerged about the scale of its actions
(regarding the 2008 crisis), the shift in the political climate in the United States, and the likelihood
that the next crisis will be in the emerging markets, and quite possibly in China, it may take more than a guardian angel to save the global economy next time.”
Plagues upon Babylon
Jesus said, “No man places a new patch of cloth on an old coat, lest its fulness tears from that coat, and the rip would be greater” (Matthew 9:16, Aramaic Bible in Plain English).
Our theme text suggests a future world-wide depression, described as the sixth plague of Revelation 16, the last plague to come prior to Armageddon, and from which there will be no recovery. We have entered a new world of unpredictability.
The financial crisis of 2008 brought a new-found fear to countries that thought globalization and unification would usher in a new world order to resolve global problems. The Apostle Paul wrote, “For yourselves know perfectly that the day of the Lord so cometh as a thief in the night. When they are saying peace and safety, then sudden destruction cometh upon them, as travail upon a woman with child; and they shall in no wise escape. But ye, brethren, are not in darkness, that the day should overtake you as a thief” (1 Thessalonians 5:2-4 RVIC). We should expect a continuation of periodic crises, like a woman in labor until a final blow comes from which there is no way out.
For those following the Lord, this knowledge of what lies ahead in God’s plan should both comfort
us and drive our behavior accordingly. One has said that Christians should live their spiritual life as if they will be gone tomorrow but live their financial life as if they will be here for the next fifty years. “Know well the condition of your flocks, and pay attention to your herds” (Proverbs 27:23 NAS). Discipline is important in all aspects of Christian life and especially important in managing financial affairs.
We need not fear a future crisis if we are managing our affairs prudently. Impulsivity and relying on beneficial providence can lead to personal financial disaster. We have the assurance that the Lord will provide for our basic needs (Philippians 4:19), but we should not expect Him to remove the consequences of poor decision-making. We should responsibly set aside adequate resources for ourselves and for those under our protection. While we do not know what our personal future holds, we do know Who holds our future. “I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do all this through him who gives me strength” (Philippians 4:12-13 NIV).