The financial system remains too fragile
Had the Fed not quickly pledged to buy unlimited Treasury securities as quickly as it did, we would have experienced another financial crisis.
A report from the Financial Stability Board prepared ahead of this weekend's G20 highlights some of the things that went wrong.
The simple version is that there is simply too much leverage in the system. It's one over-leveraged trade piled onto another right through the system. Everyone assumes they have the liquidity underneath them to unwind it. When it came down to it, there wasn't even a bid in Treasuries -- the backbone of the financial system.
One of the culprits they identified was a trade on the tiny differences between Treasuries and futures, which they estimate led to $90B of US Treasury selling at the height of the panic.
At the start of the year, hedge funds held a gross position of 750B in Treasury futures and the FSB report highlights that nothing has changed regarding market structure.
The "underlying structures and mechanisms that gave rise to the turmoil are still in place," the report says, while highlighting the moral hazard the Fed's intervention created.
"Aggressive policy actions may have changed private sector expectations of central bank actions in the future," the report said. "This could lead to moral hazard issues in the future, to the extent that markets do not fully internalise their own liquidity risk in anticipation of future central bank interventions in times of stress."
This is just the first step, regulators will now start to examine rules and changes to market structure to prevent a repeat.
The review sets out an NBFI work programme, focusing on three main areas: work to examine and address specific risk factors and markets that contributed to amplification of the shock; enhancing understanding of systemic risks in NBFI and the financial system as a whole, including interactions between banks and non-banks and cross-border spill-overs; and assessing policies to address systemic risks in NBFI.