"A single day will go down in history as 'debtonation day ' -- the beginning of the end of deregulation and privatization of finance," Ann Pettifor wrote four days after August 9, 2007. (Open Democracy, "Debtonation, how globalization dies")
On a single day central banks pumped an incredible $150 billion into the financial system to keep big banks afloat. On that day, banks in Germany and the US were unable to make their short-term credit calls. British and French banks scrambled to meet commitment. BNP Paribas halted withdrawals from three investment funds. The ECB offered "unlimited cash" as the contagion spread. The scale of debt on counterparties' balance sheets leapt into the consciousness of bankers. Lending froze. Credit crunched.
Over the next year the Federal Reserve cycled trillions through US money markets, keeping the global financial system from seizing up completely. Its credit "facilities" were often the only players. The Fed brokered deal after deal to consolidate the wreckage of the debt bomb that had gone off. Lehman Brothers, the fourth largest US investment bank, collapsed. Merril Lynch, the third largest, was forced into the hands of Bank of America. The top two -- Morgan Stanley and Goldman Sachs, became wards of commercial banking protectors. The state took over insurance giant AIG.
Pettifor had been warning about it for years, most notably in her book, The Coming First World Debt Crisis (Palgrave, 2006). But it was a calamity totally unexpected by the orthodoxy. It was a system-wide crisis that begged for a systematic solution. Seven years later, that solution has yet to arrive. The financial sector complains of re-regulation, even in its most tepid forms. Central bank policy is focused on asset markets, enriching the already wealthy. Stagnation is classified as "recovery."