Macro Folks: Why didn't COVID cause a 94/02/08 Style Crisis?

I should have been more specific. When I referenced the "false dawns" in regards to the GFC, I meant that financial market participants, economists, and central bankers kept expecting that the banking sector would recover, but it never really did.

From CS's macro research November 2009:

Just as the devastating wholesale funding run on the shadow banking system prefigured a collapse in commercial bank  willingness to lend, it is now leading the way in restoring credit availability to markets and the economy... Of course, it  would be quite wrong to suggest that this improvement in securitized lending to better quality borrowers reflects a full credit recovery. It is, however, likely to “foreshadow” a more general improvement in credit conditions... More obviously, credit is not flowing (for both demand-side and  supply-side reasons) to commercial real estate, non-agency mortgage lending, and small business lending. Of course, most commercial mortgages and small business loans, and some non-agency (jumbo) mortgages are not securitized, and so this partly reflects the commercial banks’ current extreme caution with their balance sheets.

From Ben Bernanke in 2009:

Interbank and other short-term funding markets are functioning more normally; interest rate spreads on mortgages, corporate bonds, and other credit products have narrowed significantly; stock prices have rebounded; and some securitization markets have resumed operation. In particular, borrowers with access to public equity and bond markets, including most large firms, now generally are able to obtain credit without great difficulty. Other borrowers, such as state and local governments, have experienced improvement in their credit access as well.

From 2012: 

Even with growth conditions improving and some signs of life in private credit demand emerging, the Federal Reserve seems to be itching to do more – or at least to make clear its willingness to do more should growth falter or new threats to recovery emerge. That in turn makes perfect sense given that the stock of liquid private collateral – the source material of “shadow money” – still isn’t growing. That’s consistent with an economy operating well below its capacity. It is the modern monetary counterpart of large output gaps. That is, by the way, not some arcane technical point; it is above all about jobs, hardship and hope in the high foreclosure counties and states, where recovery in income, spending and collateral values have clearly lagged the rest of the country. Indeed, it is only now that there are tentative signs of stabilization in those areas. Housing equity is frequently used as collateral to start or expand small businesses, so it is not just current spending but business formation and jobs growth that suffer. More generally, home-equity lines of credit allow households to monetize their main asset and hold lower deposit amounts in general. So the decline in home equity leads directly to higher money demand, which needs to be accommodated to assure recovery and prevent disinflation or worse.

From 2014: 

We believe the financial system will eventually bounce back in a vibrant new form, but the next few years will be a period of transition. Until a new system emerges, the private sector will struggle to create liquidity, financial transaction volumes will be low, and it will be necessary to maintain reflationary policies such as low interest rates. Market price action is likely to be “jerky,” characterized by bouts of illiquidity in which prices gap lower while buyers are temporarily absent, as in June of this year ... The newly emerging system is likely to be much less elastic and liquidity-generating than the old version. Market  participants must navigate through a period when  liquidity is reduced and financial balance sheets are shrinking due to both weak real recovery and new regulatory headwinds. For the time being, the financial system  is  paying a double penalty for the crisis. It is shrinking unprofitably, and struggling to maintain liquidity along the way. In our view, however, the financial system will  bounce back vibrantly in a new form. As long as liquidity can be profitably provided, entities will arise to do that business.

Note the persistent optimism that the "real" recovery is just around the corner... This is what I mean by false dawns. 

Sure the COVID restrictions are annoying, but what do they really impact economically/financially? Restaurants, hotels, gyms, concerts, other in-person events, etc. - mostly hospitality related jobs. Hospitality is only ~ 10% of GDP.

Everyone else has been working through COVID restrictions with minimal impact after the first 6 weeks of strict lockdowns. Businesses adapted if they could and switched to remote work, grocery stores remained open, and online and delivery businesses boomed. The downtick in services was matched with a corresponding uptick in goods spending. Restaurants going out of business is not a systemic economic event - that's probably just the long and short of it. 

Furthermore, not every state/city has had the same open/close whiplash. Texas and Florida, two of the largest state economies, have largely remained open after the initial 4-6 weeks. Not every state/city is like Los Angeles, New York, Chicago, etc. 

The whole country was basically able to lean into the HQLA buffers that had been built up so commercial banks could provide funding, which combined with unprecedented fiscal backstops, were able to get us through the worst of the economic disruption, which only lasted a short period of time anyway. 

I can definitely see the China argument. China has been the marginal consumer/source of growth in the global economy for a long time - so they can definitely drag down the global economy. They also have a lot of their own idiosyncratic issues which are worse than just COVID and they've been walking a tightrope now for longer than most people thought they would be able to with the instability of their financial system. 

I think many people have been scarred/impacted by 07-08 so that if there isn't another Lehman failing it doesn't seem like a big deal. There are worse fates than that (i.e. Japan).