Making Hay Monday – January 21th, 2026

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David Hay

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Haymaker

Making Hay Monday

Lessons Learned in the Fullness of Time

“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.” -John Stuart Mill, as recently reprised by Charles Gave

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Lessons Learned In the Fullness of Time

* During the 2007–2009 Global Financial Crisis, the financial system nearly collapsed due to subprime mortgages, excessive leverage, and flawed assumptions about housing prices never falling nationally.
* Mark-to-market accounting, introduced just before the crisis, amplified panic by forcing banks to recognize massive paper losses, pushing even healthy institutions toward perceived insolvency.
* Government intervention through TARP, combined with suspending mark-to-market rules, ultimately stabilized the system and even generated a profit for taxpayers, but only after severe economic damage.
* In the aftermath, years of ultra-low interest rates and quantitative easing failed to produce strong growth, instead inflating asset prices and widening wealth inequality.
* The pandemic triggered an even more extreme response: massive fiscal deficits financed by the Fed, which crushed bond yields and later ignited inflation, leading to one of the worst bond bear markets in history.
* A pivotal but underappreciated moment came in March 2020, when the Fed, for the first time, bought corporate bonds and instantly reversed market panic with relatively little capital.
* Looking ahead, in the next major crisis, the Fed is likely to go even further (potentially supporting equity markets directly) reinforcing the idea of a persistent “Fed put” under risk assets.

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Hello, Subscribers:

Perceptive readers may notice that the senior citizen Haymaker (I still can’t quite believe that) has signed his name to the introductory section of this edition of Making Hay (Almost) Monday (MH(A)M). The reason for that is I need to go back about 17 years ago, when my career was still in about its sixth inning.

At that point, I’d been in the investment industry for nearly 30 years. This should have meant I’d seen it all but the events of 2007 through early 2009 were unlike anything I had witnessed before… or after. In case you’ve got a case of protective amnesia, the world’s financial system came perilously close to imploding. The serial collapses of what had been perceived to be “too big to fail” financial firms (Lehman, AIG, and Washington Mutual) set off a chain-reaction that threatened to bring down almost every leading bank and insurance company.

The culprit was the now widely acknowledged cataclysm in the sub-prime mortgage market. Yet, in the summer of 2007, then Fed-head Ben Bernanke had assured the world that what was happening in sub-prime would stay in sub-prime. A year later it became excruciatingly clear that this hopeful view was dead wrong, with nearly fatal implications to the global economy. By September 2008, the crisis was rapidly metastasizing through the entire financial system, not just in the U.S. but around the world, as well.

Amplifying this disaster, a new accounting rule had recently gone into effect requiring financial institutions to “mark their assets to market”. In other words, they were to value them on their balance sheets at what they were trading for, assuming there was a visible market price available. This seemed like a sensible regulatory change, at least under normal market conditions. Yet, in an utter panic, such as happened several times between Labor Day 2008 and early March of 2009, it was like pouring napalm on a raging inferno…