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0:04
The story since the
GFC has been one of
crisis, of widening, of
coming to terms with
new and difficult realities and
COVID and the reaction of the
Federal Reserve is actually
an extension of
that pattern, and
a reminder that these issues are
likely to continue to
persist into the future.
0:20
At the same time, as
cities were going
into lockdown in
February and March,
and emergency wards begin
to fill up with patients,
there was a parallel financial
emergency unfolding.
Once again, central banks
and governments in March,
there was a simultaneous
collapse in
stock prices and an
increase in bond yields.
What this meant was that instead
of the traditional
response during a crisis,
which is for investors to shift
their money from
equities into bonds,
investors across the
world were selling
everything in a
desperate attempt
to get their hands on cash,
which was a similar pattern that
occurred during the
worst parts of the GFC.
But as you can see on the right,
the actual outflows of people
pulling their money
out of mutual funds
was far worse during COVID
than during the GFC.
1:02
On its surface,
COVID's impact on
financial markets
looked at first like
a rerun of the GFC and
central banks were
ready. In mid-March,
the Federal Reserve
announced a package
of tools and policies very
similar to what had been
used during the GFC.
In fact, it reactivated
the series of
old facilities that had
been used during the GFC.
However, unlike the GFC,
this time, it didn't work.
In a few days after the
Fed's announcement,
markets continued to
panic and ended up
descending into break
down and again missed
this pattern where central
banks were forced to
expand their role and
their policy to combat
the new crisis,
and it wasn't till that
expansion had taken place
with the Fed's announcement
that they'd be moving
into corporate,
municipal debt markets,
that financial markets
actually began to
calm down towards the end of
March, beginning of April.
