We are now going through a period which I am calling the Great Thaw and in order to have a great thaw you need a very deep freeze, and boy did we ever get one in 2008. It was the greatest economic freeze we have seen in a long time.  It occurred in October and November and created a panic so furious that practically every investment around the world fell sharply in value. In those few short months, the world financial system nearly came to a crashing halt mostly caused by a deep freeze in the credit markets.  Like a river which flows when temperatures are moderate, but stops flowing as temperatures decline, the flow of money can also stop circulating under extreme conditions.  These conditions occur because banks lose confidence in the value of their own investments. In a tizzy about the loss of their own capital, banks become less confident about lending to other enterprises as well.  You see, if banks aren’t sure they will get their own money back from the loans they provide, they will stop lending money to others.  When banks can’t trust their best clients to pay them back, lending stops; hence, the deep freeze.  One way to tell the extent of the freeze is to follow the rate of interest banks charge on loans.  If money is tight, interest rates will rise, and rise they did in 2008. Commercial paper rates reached 7% (which means that no money was really available) and LIBOR, the rate banks charge each other, rose to such extreme heights that capital became literally unavailable to companies in need. Once money no longer flows, the financial system can seize up and bad things will happen.  I don’t want to think what this may have meant for the rest of us.

 
To the rescue came the Federal Reserve and the Treasury. They rushed to get billions of dollars released to the banks in an effort to shore up their capital, and prevent the economy from grinding to a halt.  The government tried a number of different strategies, some of which did not work or worked too slowly.  The strategies’ degree of failure or success, as measured by the reaction of interest rates and the stock market, proved discouraging. As a result, the Federal Reserve decided to insure everything the banks owned and every investment the banks had made, without discrimination.  The scope of this governmental intervention surpassed anything seen before.
 
The Federal Reserve even reached out to private companies who asked for help.