If you draw what statisticians call a time series of the returns to the U.S. banking sector from 1947 to 2008, it is possible to talk with some confidence about the average rate of profitability of the sector over time, the peaks (1990s to mid-2000s), the troughs (1947 to 1967), and the sharp growth of the sector’s profitability over the past 10 years. If you then add in the data for the period between August 2008 and April 2009, the entire series, like the banking system it describes, simply blows up. Averages, means, variances, and the like dissolve, so extreme have been recent events. Indeed, when the former chairman of the U.S. Federal Reserve Bank, Alan Greenspan, admits that his understanding of market processes was deeply flawed, and when the current chairman, Ben Bernanke, says that we face the greatest crisis since the Great Depression, we should probably take it seriously.
And serious it is. With a grossly diminished $1.3 trillion in assets and as much as $3.6 trillion in liabilities, coupled with a halving of the stock market, the U.S. financial system is either severely stressed, insolvent, or, worse still according to some, at the end of its tether. The end of capitalism has been declared many times before. And yet, to paraphrase American writer and humorist Mark Twain, reports of its death have been greatly exaggerated.