"I knew when they broke the buck, the fund would be frozen," he said. He also knew there would be a run on other such funds. McHugh called regulators that night to warn of these consequences.
Investors pulled billions out of money market funds in the following days. For the first time, the Treasury Department rushed to guarantee the principal in money funds that bought into a temporary insurance program. Reserve Primary was liquidated with investors losing less than a penny for every dollar invested.
The lesson McHugh learned from 2008: "Real estate is a market that can go down just like any other market can."
Susan Breakefield Fulton, founder and principal of FBB Capital Partners
"We began fretting in November of 2007," said Fulton, whose Bethesda firm manages $680 million.
A bubble seemed to have developed in financial stocks, Fulton said, so the firm reduced its position in those shares by a third. It also moved clients' money out of money market funds and into U.S. Treasurys.
"We went into 2008 with a lot more cash in our client's portfolios than we would normally have," Fulton said.
Then she watched the cascade of bad news unfold.
"It was very scary," she said. "You could just see it was like the rider of the Apocalypse."
Still in late 2008, Fulton's firm was buying up quality corporate bonds for 20 cents to 40 cents on the dollar.
The government was right not to bail out Lehman and should have let other failing players go under too, she said.
"They all think they are too big to fail," Fulton said. "Someone had to finally pull the plug on them."
Fulton wasn't a fan of the Troubled Asset Relief Program, in which the government provided capital in exchange for dividend-paying securities from the banks, but she acknowledged it was necessary.
She said she wants a return of the Depression-era regulation — repealed in 1999 — that separated securities and traditional commercial banking activities.
Mary Ann Scully, CEO and chairwoman of Howard Bank
Howard Bank was only 4 years old when the market imploded, but Scully wasn't worried. The bank didn't own mortgage-related securities that got institutions in trouble, and Maryland's economy appeared more resilient, she said.
Howard received $6.5 million in early 2009 from TARP. The bank took the money for two reasons, Scully said. One: The economy was weakening and some borrowers were likely to default. And two: Howard saw this as a once-in-a-lifetime opportunity to grow.
Howard had a chance to lure customers from the big banks that would be hit by the crisis, she said, as well as from two nearby competitors that had been acquired recently.
The bank sustained its first and only loss in the fourth quarter of 2009 by writing off bad loans, but its loan portfolio also grew by more than $40 million, she said. Howard repaid the TARP money in 2011.
"Any banker you talk to says it feels like yesterday," Scully said. "The sad thing is some people are acting like we are past it."