For many investors, the 200709 mortgage meltdown and financial
panic are the benchmark for a worst possible outcome.
The Dow Jones industrial average fell 54% in the 17 months from
9 October 2007 9 March 2009.
Major investment firms including Lehman Bros, Bear Stearns,
Fannie Mae, Freddie Mac and AIG either filed for bankruptcy or were
rescued by government intervention after massive losses.
US unemployment soared from 4.4% in March 2007 to 10% in October
The Case-Shiller home price index crashed from 182.72 in January
2007 to 133.99 in February 2012, a 27% plunge.
Housing investors with only 10 or 20% equity were wiped out.
Numerous hedge funds closed their doors or suspended redemptions.
Investor losses were in the trillions of dollars.
The contagion spread to Europe and the Middle East.
Dubai World went bankrupt in November 2009 and a sovereign debt
crisis raged in Europe from 20102015. It was the worst financial
crisis since the Great Depression.
Decade long stock market
The financial damage did not pass quickly.
From June 2009September 2018, the US experienced the weakest
recovery in its history.
Yet the damage did end.
From March 2009September 2018, major stock indexes more than
tripled. Unemployment fell from 10% in October 2009 to 3.8% in May
2018, the lowest level in 18 years.
The Case-Shiller home price index rallied to 204.44 in June
2018, a new all-time high.
Investors who did not sell at the bottom in March 2009 and held
their positions had recouped their losses and made substantial
profits besides by late 2018.
A bank CEO or investment maven like Warren Buffett could
practically shrug the whole episode off.
Yet thats not how most investors navigated the meltdown.
Investors bailed out of the stock market in late 2008 or early
2009 to preserve what capital they had left.
They did not come back to the stock market until years later, if
at all, missing out on much of the recovery rally.
Bank CEOs got a bonus while Average Joe was
Homes were foreclosed, denying the previous owner any
participation in the bounce back that started in 2013.
Worst of all was the psychological damage and loss of trust.
Investors who suffered heavy financial losses saw bank CEOs keep
their jobs and make multimillion-dollar bonuses by 2016.
There were no arrests for fraud, no trials and no accountability