So, is it finally over? We ask this about the financial crisis that erupted nearly two years ago. The road from there to the near-collapse of the global economy in early 2009 is well known.
The recent signs have been good. Financial firms such as Goldman Sachs, JPMorgan, Citigroup and Bank of America have announced strong earnings. Market indicators of panic such as the VIX index and the TED spread are back into safe territory. Global markets have rallied.
But it is easy to overlook some plain facts. American banks have stabilized only because the US government went to extraordinary levels to save them from bankruptcy. Even Goldman’s profits were possible because the counter-party in many of its derivative positions— American International Group—was bailed out.
The end of the financial world has been averted. But as housing prices continue to decline, personal bankruptcies rise and the developed economies grapple with recession, the Western financial sector has many rough rivers to wade through.