How did we get here so fast?

How can a virus have such an impact on the financial markets that is almost worse than the 2008 financial crisis, in just a matter of weeks? 

If we look back at the 2008 financial crisis it was caused by the mortgage crisis which stemmed from the unregulated use of derivatives. 

A financial crisis usually occurs when assets become overpriced resulting in people failing to pay back their debt (for example with the mortgage crisis).

We can then also face a steep decline in the value of securities such as stocks as many people sell-off because of failing banks and financial institutions, and people may prefer to put their money in more stable places, such as keep hard cash or purchase gold. 

The main difference between the financial market crisis of 2008 and the COVID-19 Crisis is that the financial crisis was a result of failed banks. at the end of it, it was a matter of “will I still have my cash in the bank tomorrow?” Trust in the financial markets was lost because assets had been poorly insured.

COVID-19

Now, the COVID-19 that has affected the markets is based on concerns of the virus, which have led to reduced production of goods and services. It is not from the overpriced assets plunging. Another factor that contributed towards the market failure from earlier this week was the announcement of a travel ban, imposed by President Trump. 

Remember the markets usually react to speculation and news. Hence the news of the travel ban, the news of the COVID-19 having no vaccination, the news of people losing their jobs as a result of this….led the financial markets to react.