Vice Chairman, Goldman Sachs (International)
It was very unnerving, obviously, because it hit with such suddenness. One minute you're in the middle of a tranquil pasture, and the next minute you're in the middle of a hurricane. And it's a category 5 hurricane. We didn't have real-time computer data in front of us like we have now, but you could certainly see it coming undone. I saw the reports on TV. I was on the ABC evening news with Peter Jennings the night after. He had me on with Charles Schwab, and I remember both of us said, "Look, the underlying economy is not that bad. It was much more of a financial event than an economic event."
I still believe one of the key elements that triggered the crisis was the report on the trade deficit that had come out Oct. 14, because there was a concern that the dollar could weaken very dramatically, and that would force up interest rates, which would put additional downward pressure on stocks.
I remember the Federal Reserve made a statement that it stood ready to provide liquidity to support the economy and the financial system. It was a critically decisive act. That one-line statement from the Fed was extremely important. It didn't turn the thing around immediately, but it did help enormously.
The crash taught me three things. First, it underscored to me how critically important the Federal Reserve is - not just in terms of its money but as a steadying factor in financial markets. The Treasury can say things that are calming, but the country looks to the Fed.
Second, I learned how quickly otherwise calm markets can collapse and appear to have no bottom. The greatest enemy of stability, in a way, is stability. People become complacent when they see a long period of stability and they can't imagine a sharp market drop. But when that happens, people haven't prepared for it. They're too exposed to it.
And finally the third lesson is, markets do come back, but they don't necessarily come back right away or without the steadying support of the government. If the Fed hadn't done something reassuring and quickly, the crisis would have been a hell of a lot worse.
