This Isn’t 2008 All Over Again, Exactly

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Photo: Scott Eells/Bloomberg via Getty Images

It might feel a whole lot like three years ago — the cratering markets, the sense of uncertainty, and the return of the pictures of sad traders. The 2008 crash is the most vibrant memory most of us have of financial panic: recent and painful. Lots of things look like '08, too: The Dow tumbled dramatically yesterday, down 635 points in the sharpest drop since 2008. It's hard not to feel déjà vu. And yet, while the symptoms might be similar, the disease isn't precisely the same.

As the Wall Street Journal points out, the root causes of this stock sell-off and the 2008 panic are completely different: Then, the problem started with home buyers overextending themselves, and it spread through (and was compounded by) the big investment banks, whose failure triggered the collapse. This time, the problem started with governments. They haven't been able to fix the economy; things have come to a head; and so the stock market has reacted to that. Only now are banks starting to get really worried as their stock plunges. Last time, the problem was caused by overspending and too much credit; this time, it's been the lack of spending that's been problematic. And will continue to be so: Government bailouts and stimulus, the solutions of 2009, aren't going to happen here in the States this time, nor would the same fiscal policy solutions likely work, given the different nature of the crisis this time around.

All that is not to say that 2011 and 2008 are totally divorced from one another. Of course not. The failure to fully recover from the 2008 crisis is a huge part of why we're being hit with this one now. Consumers will react in much the same way they did three years ago, pulling back their spending and exacerbating the problems. But facile comparisons — which remind people of that panicky time and so perhaps color their reactions this time around — aren't helping anything.

Related: Return of the Sad Traders: Proof That Americans Don’t Understand the Economy
Why This Crisis Differs From the 2008 Version [WSJ]
Fear Returns for U.S. Banks [WSJ]
A Wave of Worry Threatens to Build on Itself [NYT]