It is just over seven months since Bear Sterns was forcibly incorporated into JP Morgan. It is just over six weeks since the United States government took over Fannie Mae and Freddie Mac. It is a month since Merill Lynch sought an emergency sale to Bank of America and Lehman Brothers went under. AIG was rescued four weeks ago. Goldman Sachs and Morgan Stanley were transformed into bank holding companies on September 22nd.
Over the past four weeks all of the listed former building societies in the UK have disappeared. HBOS has been forced to merge with Lloyds TSB. Of the former big four clearing banks two have essentially been nationalised.
In the Euro-zone, Dexia and Fortis have been rescued, the latter forced to merge with BNP-Paribas.
The run on the Icelandic kronur has brought the country to the brink of penury.
Any single one of these events would have been considered spectacular on its own, taken together they represent the greatest single economic failure in at least two generations.
The meltdown of Black Friday dwarfs any previous crash., but perhaps when we examine the crisis that has been unfolding over the last year, perhaps we should not be so shocked.
Now, the markets appear to believe that the effective nationalisation of the banking system around the world can stabilise the situation at least for the immediate future. Eventually the work-out of the debt will reduce the overall level of the bill to the tax-payers. However, while the total bill is likely to be only between 10% and 20% of the total, that is still a dramatic increase in the level of state debt- a debt that we will pass on to unborn generations.
I will leave it to economic historians to analyse and attribute the blame for the meltdown. However, the consequences of banks' risk modelling- the fundamental systemic flaws that Nassim Nicholas Taleb identified some years ago- must surely be the first in line.
There are also immediate consequences of the meltdown. Much that we took for granted before last week's Black Friday no longer holds.
The first consequence must surely be the severe punishment of the American Republican Party at the polls on November 4th. The corruption and incompetence of the catastrophic Bush administration has been truly wretched to behold. The splits in the party, revealed to appalling effect by the failure of Republicans to back the Paulson plan in the Congress on September 29th. Despite Sen. McCain's undoubted courage and strength of character, his unhappy choice of Paleo-Conservative Governor Sarah Palin as his running mate is set to deliver the Presidency to Sen. Obama by a landslide. Even John McCain's many positive qualities can not stop the rout, and the Republican party will take at least a decade from the disaster of the Bush-Cheney administration. The futility of this most arrogant administration seems set in retrospect to make the malaise of Jimmy Carter look like a golden age. The Democrats may indeed win states that they have not won since the 1960s. McCain was ahead in September, he is well behind now.
In the United Kingdom, it is clear that Gordon Brown has had a good crisis. Britain, as a leading financial centre, was duty bound to play an important role, but Mr. Brown with his Treasury experience behind him, has been able to push for measures that seem set to be the model, not only for other states in Europe, but in the United States too. It remains to be seen whether this success transfers into a lead in the opinion polls, but it certainly puts Labour back in the game.
Andrew Neal, interviewing Nick Clegg the other day asked "who is listening to the Liberal Democrats anymore", but probably Neal's vanity lives in a world where Vince Cable does not. In fact the Liberal Democrats have found a figure that is respected and listened to across the party spectrum. Indeed Dr. Cable has had an even better crisis than Mr. Brown and has been ahead of the crisis at every stage. By contrast Messrs Osbourne and Cameron have struggled not to appear shrill and lightweight. The impact of the crisis on British politics remains to be seen, but it is clearly going to be a far more open game than it was for much of 2008.
Another unexpected gainer has been the European Union. Despite the constant sniping from anti-Europeans like Ambrose Evans-Pritchard, the EU has not seen a meltdown. Indeed the Euro has been much more resilient than any forecast. Despite the lack of a central point of authority for bank supervision, the co-ordination of the contact between the various separate central banks, while far from ideal, has so far proven robust.
Russia has been another big loser. Although it continues to maintain a highly aggressive stance- continuing with the missile tests this week which simulated a nuclear launch against a British target city. It can not be sustained with oil back down below $80/bbl. The damage to Russia's international credibility from the repeated closure of the Moscow markets during the crisis has been substantial. Those members of the Silovik state who advocate greater economic freedom may have scored a small victory- but even the giant Russian reserves have not prevented an even greater meltdown in Russia than elsewhere. Russia has been damaged badly by the crisis.
As the markets begin to take stock and new patterns of global finance begin to reform, it seems as though firms like GLG, Och-Ziff, Perry Capital and Citadel will fill the vacuum created by the collapse of the old Investment bank model. To an extent the world is reforming in the pattern of the 1930s- commercial banks tightly regulated and conservative and investment banks free wheeling and creative- but only risking their own money and those of their partners.
It has been a hell of a ride to get us back to where we were before- and the political and other consequences may take many years to play out.