How to deal with a new sort of financial shock

Editor’s note (March 12th 2020): This article was updated after the European Central Bank’s policy meeting on March 12th.

WHEN FACED with a bewildering shock it is natural to turn to your own experience. As covid-19 rages, investors and officials are scrambling to make sense of the violent moves in financial markets over the past two weeks. For many the obvious reference is the crisis of 2007-09. There are indeed some similarities. Stockmarkets have plunged. The oil price has tumbled below $40 a barrel. There has been a flurry of emergency interest-rate cuts by the Federal Reserve and other central banks. Traders are on a war footing—with a rising number working from their kitchen tables. Still, the comparison with the last big crisis is misplaced. It also obscures two real financial dangers that the pandemic has inflamed. (For more coverage of covid-19 see our coronavirus hub.)