“The problem we have is that the classic tool of monetary policy is basically not going to be very effective,” Philipp Hildebrand, vice chairman of BlackRock Inc., told Bloomberg TV on Tuesday.

The years of low, low rates in the U.S. have left an oily aftertaste. There was a lot of borrowing. Business investment used to rise when U.S. companies took on more debt because most companies borrowed to add capacity. But since the crisis, many indebted companies used that cheap money to borrow themselves out of insolvency. Many others used it to buy back shares and finance dividend payouts.

That’s left them more at risk in a contraction, said William Lazonick, a professor at the University of Massachusetts at Lowell.

Fragile Companies
“Buybacks, especially to the extent that they have been debt-financed, have increased the fragility of these companies,” Lazonick said. He said he’d been worrying that “something was going to happen that was unexpected that would exploit this vulnerability. And now we’re seeing this with the virus.”

This year’s turmoil may be a kind of mini-2008, but it’s still swollen with superlatives. A credit-derivatives index that measures the perceived risk of investment-grade corporate credit surged Monday by the most since Lehman. The entire U.S. yield curve fell below 1% for the first time in history. U.K. bond yields tumbled below zero for the first time. Germany’s 5-year government debt yield dropped and now hovers at about minus 1%. That came on a day when U.S. stocks plunged nearly 8%, its biggest one-day drop since -- you guessed it -- 2008.

The chance of a U.S. recession in the next 12 months rose to 53%, according to the Bloomberg Economics model. That’s up from 24% in January and the highest since the last U.S. recession, which ended in June 2009 after 18 months.

How Long?
How long will the pain last this time? Many people are still grappling with the fallout from 2008, whether it be curtailed careers, homes never recovering their value or retirements postponed. This time, there are differences of opinion.

“Two thousand eight was all about banks, funding and very concentrated risks,” said Alessandro Tentori, chief investment officer at Axa Investment Managers. “This feels more akin to a very strong, but classic recession, albeit with a high leverage which will need time and pain to be worked through.”

On the other hand, according to Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock Investment Institute, unless this “temporary shock is badly mishandled,” it shouldn’t prove long lasting.

Mateos y Lago is joined in her thinking by Torsten Slok, Deutsche Bank AG’s chief economist, who said Monday any recession and slowdown in earnings won’t be as bad as 2008.