Is Another Financial Panic On the Way?

On September 15, 2008, Lehman Brothers failed and its collapse triggered a financial panic. This was the first true panic since the Great Depression or even perhaps since 1907.  A financial panic is very different from a regular stock market decline such as we saw in 2000-02 or 1973-74.  A falling stock market may be  scary, but falling stocks alone do not constitute a financial panic.  During a panic, stocks plummet, but there has to be a second factor, which is a widespread loss of faith in the entire financial system.  That happened in 1907, which led to the formation of the Federal Reserve Bank.  It also happened in the Great Depression as banks failed, unemployment soared, trade barriers increased and global economic output fell.