WHAT’S THE STORY?

TEN years ago today on October 24, 2008, the world’s stock markets crashed.

Most indices, such as the FTSE 100 and Dow Jones, fell by up to 10% – more in countries where there was greater exposure to debt.

Most histories of the financial meltdown point to Bloody Friday as the day the crash went global. It was no longer just a problem for the USA, UK, Iceland and the Eurozone – this was disastrous on a worldwide scale.

As many experts said at the time and have repeated since, we will never know how close we came to the complete collapse of the financial systems of the world and the mayhem that would have been caused.

Millions of people lost billions of pounds worth of wealth, and the knock-on effects included the entire restructuring of Scotland’s largest private sector employer, the Royal Bank of Scotland.

DIDN’T WE SEE THE CRASH COMING?

YES and no. Plenty pundits predicted that the glory days of the stock markets and the financial giants would end with a bang, but most ordinary people took the bankers’ and finance ministers’ word for it that there was nothing to worry about.

The strands of the economic disaster were disparate and diffuse and most people in the UK only became aware of the impending crisis in August 2007 when French institution BNP Paribas froze three funds and admitted there was a huge problem with sub-prime mortgages which few of us had ever heard of.

The same month saw Northern Rock admit it could not service its debts and so we had the first run on a British bank for 150 years with people queuing up to withdraw their money.

After two failed private sector attempts to save the lender, chancellor of the exchequer Alistair Darling took until February of 2008 to nationalise Northern Rock, saying it would be a temporary measure – four years later it was still state-owned.

DIDN’T GOVERNMENT INTERVENTION HELP TO STABILISE THE MARKETS?

NO, not by a long chalk.

The focus switched to America where the Federal Reserve System, the USA’s central bank known as The Fed, had been trying to keep the lid on things for months, especially after JP Morgan had stepped in to buy the Bear Sterns investment bank which was threatening to go under.

The Fed itself rescued the Fannie Mae and Freddie Mac mortgage companies as the American housing market collapsed.

BLACK SEPTEMBER

EARLY in September, USA giant Lehman Brothers filed for bankruptcy, prompting worldwide financial chaos.

In the middle of the month the UK’s largest mortgage lenders, HBOS, had to be rescued by Lloyds TSB after a huge drop in its share price.

US investment banks – once the kings of Wall Street – plummeted in value, and Goldman Sachs and JP Morgan Chase changed their status to banking holding companies rather than investment banks. Two more American banks collapsed – Washington Mutual and Wachovia.

The contagion spread. Ireland went into recession and could not honour its promise to underwrite its banking system.

EVEN DARKER OCTOBER

ICELAND’S three biggest commercial banks, Glitnir, Kaupthing, and Landsbanki, collapsed early in October. To protect British customers, prime minister Gordon Brown used emergency powers to freeze the assets of the banks’ UK subsidiaries.

Unlike in the UK, the bankers who caused the crash in Iceland were prosecuted and several were jailed. No banker in Britain has ever stood trial for their role in the 2008 crash.

Central banks cut interest rates to 0.5%, hammering savers, but as the Dow Jones suffered its biggest ever weekly losses, the markets’ fall didn’t stop.

The International Monetary Fund warned that the world’s entire financial system was teetering on the “brink of systemic meltdown.”

October 13 was Britain’s worst day – Brown and Darling spent tens of billions to avert the collapse of the UK banking sector. RBS, Lloyds TSB and HBOS were all bailed out. RBS is still state-owned.

Lord Paul Myners, appointed City Minister that month, later said: “RBS, HBOS and Lloyds were experiencing a professional bank run, where the markets were no longer willing to fund the UK banks. That’s why we stepped in. We will never appreciate how close we came to a collapse of the banking system.”

THE WORST DAY

ON October 24 the global crash occurred. Many of the world’s stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. Later that day, the deputy governor of the Bank of England, Charles Bean, said: “This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history.” Coordinated action by governments and central banks saved the day, but at extraordinary cost. Stock markets recovered slowly. Now the fear is that it could happen all over again.