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Lehman 9/15
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The lessons of Lehman, learned and unlearned
Sep 15, 2015 | Washington Post
By Jared Bernstein
On this day, seven years ago, the investment bank Lehman Brothers collapsed into bankruptcy. -
Where are they now? The key figures in the collapse of Lehman Brothers
Sep 15, 2015 | The Telegraph
By Marion Dakers
Catching up with the men at the helm when the bank went down. -
Remember the lessons of Lehman’s collapse
Sep 15, 2015 | The Hill - Congress Blog
By Sen. Sherrod Brown
Seven years ago today, the investment bank Lehman Brothers filed for bankruptcy. A day later, behemoth insurance conglomerate AIG was bailed out by taxpayers. Together, these actions helped sink our financial markets and push our country’s economy into an abyss. No one could see the bottom. -
Seven years on, investors forget harsh lessons from Lehman collapse
Sep 15, 2015 | Sydney Morning Herald
By Ruth Liew
It's been seven years since the collapse of Lehman Brothers that helped spark the global financial crisis, but experts are now warning that a second GFC may be on the cards as investors remain in debt and forget the lessons of the past. -
September 15, 2008: Lehman Brothers Files for Bankruptcy and American Finance Collapses
Sep 15, 2015 | The Nation
By Richard Kreitner
After the collapse of Lehman Brothers on this day in 2008, a lot of publications woke up to the danger posed to the American economy by mortgage-baked securities and other toxic deliveratives. -
Lehman's psychological scars fuel investor jitters
Sep 15, 2015 | Financial Review
By David Oakley
Psychological scars left by the Lehman Brothers crisis might be playing a part in unsettling markets as investors contemplate the first possible rate rise by the US Federal Reserve in a decade. -
Have we learnt any lessons from Lehman?
Sep 15, 2015 | Independent Financial Advisor
By Taylee Lewis
Seven years on from the collapse of Lehman Brothers, Australia remains vulnerable if another global financial crisis hits, says Equity Trustees. -
Lehman’s Mythical Fall Seven Years On: Banks With Higher Balances, But Working
Sep 15, 2015 | The Corner Economic
By Julia Pastor
In September 2008, the terrible impact of the so-called subprime mortgage crisis had already hit the markets. Banks were not lending to each other, causing a severe credit crunch, while central banks had injected liquidity on a large scale for the first time. -
Lehman Day: Making Fun of the Second Great Depression Crowd
Sep 14, 2015 | Huffington Post
By Dean Baker
This week marks the 7th anniversary of the collapse of Lehman Brothers, the huge investment bank. This collapse set off the worldwide financial panic that brought Wall Street to its knees. The anniversary of this collapse, September 15th, is the day set aside to ridicule the people who warned of a second Great Depression (SGD) if the Treasury Department and the Federal Reserve Board didn't rescue the Wall Street banks. -
How imminent rate rises and the China slump are raising fears of new financial crisis seven years after Lehman Brothers collapse
Sep 14, 2015 | The Daily Mail - This is Money UK
By Hugo Duncan
Britain and the United States were at the epicentre of the financial crisis that claimed Lehman Brothers seven years ago today. The dramatic collapse of the 158-year-old banking giant, on September 15, 2008, plunged the world’s already teetering financial system into crisis and triggered a brutal global recession. -
R.I.P. Lehman: equities seven years on
Sep 15, 2015 | Financial Times
By Staff
So what has changed since the dramatic collapse of risk-taking investment bank Lehman Brothers seven years ago? Put simply, stock market valuations have improved greatly but companies' performances have not exactly matched this growth. -
Seven years since the Wall Street crash
Sep 15, 2015 | World Socialist Website Blog
By Nick Beams
The bankruptcy of the US investment bank Lehman Brothers seven years ago today signalled a breakdown of the global capitalist economy and financial system that continues to deepen.
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The lessons of Lehman, learned and unlearned
Sep 15, 2015 | Washington Post
By Jared Bernstein
On this day, seven years ago, the investment bank Lehman Brothers collapsed into bankruptcy.
The story of what happened, before and after, has been told many times. It’s about a housing bubble inflated by reckless finance, about how policy makers ignored, if not goosed, the bubble, about how the costs of the disaster—the widespread income losses associated with the Great Recession—have fallen largely on innocent bystanders, while the finance sector, at least the parts left standing, has more than recovered.
But for all that story-telling, there are a few economic lessons we’ve yet to learn, and we’re not alone—policy makers in other economies have also failed to learn these lessons.ADVERTISING
I’m not talking about financial market oversight. The initially disorganized and inconsistent approach to the financial part of the crisis—Bear Stearns got a bailout; Lehman didn’t—along with the systematic underpricing of risk and unsustainable leveraging, led to market reforms. While we won’t know the effectiveness of the Dodd-Frank until we see them in action, the law has a lot to recommend it (full disclosure: I was an administration economist back then).
Instead, I’m talking about both the coddling of lenders—banks, investors, money markets—and the inadequacy of fiscal policy. These two issues are related.
In a recent New York Times piece, Bin Appelbaum notes that, for technical reasons having to do with how much money the Fed pumped into the credit system in the name of monetary stimulus, central bankers are now planning to use some unusual tools to raise interest rates. These tools include paying banks not to lend by raising the interest rate on the reserves member banks keep in the Fed’s vaults (or at least on its spreadsheets), and borrowing from overnight lenders (money market funds) at a slightly pumped-up rate of interest.
In other words, when the lenders recklessly lend too much and screw things up for everyone else, we bail them out. Now, we (i.e., the Fed, but it’s a public institution) are paying them not to lend. Borrowers get austerity, joblessness, and poverty. Lenders get bailouts when credit is scarce and bribes not to lend when it’s too plentiful.
You see that here and you see it in Europe. It’s not fair and people know it. It’s one reason why people believe the system is broken and why anti-establishment candidates are getting so much attention right now (never mind that Trump himself got bailed out of bankruptcy four times).
Why, then, do we treat lenders like this?
Surely, Lehman is a major reason. The government decided not to bail it out, and its collapse is often blamed for setting off the Great Recession. Other over-leveraged, weak institutions and their investors didn’t know what to think—was there a government backstop for creditors (Bear) or not (Lehman)?—and credit and equity markets freaked out, to use the technical term.
The government shifted quickly to full-on bailout mode—AIG, Citigroup, Morgan Stanley, and lots of others got “rescued.” Don’t annoy the lenders! Nobody even gets a “haircut” (where lenders to insolvent institutions get back cents on the dollar)!
Many progressives believe we’d be better off today had we taken the road less traveled, allowing more systemically important financial institutions to fail. The rationale for the bailouts is that modern economies can’t function without credit, but since the Federal Reserve is the lender of last resort, it could have taken over until the financial markets recovered.
I’m agnostic, and believe that decision should be a function of first, what’s most effective in terms of getting back to full employment most quickly, and, second, what’s least costly in terms of national resources. We do not know the answers to such questions (and frankly, risk-averse policy makers are unlikely to allow multiple failures when the economy is already fragile).
But here’s what I do know. Neither bailouts nor allowing insolvent banks to fail will work if, when private sector demand is subsequently tanking, we undercut the use of fiscal policy to make up the difference. In this regard, the clearest lesson of Lehman is not simply that we must regulate financial markets, which is true, nor is it that we must always preserve private credit flows by fully bailing out irresponsible lenders, which contributes to inequality and economic unfairness.
It’s that it takes both monetary and fiscal policy working together to get back to full employment. Restored credit flows alone won’t get people back to work. That’s pure supply-side thinking.
I hear you: “wait a minute…you’re trying to say a fundamental problem of contemporary capitalism—the bubble/bust syndrome—can be solved by government borrowing and spending? By fixing some potholes? How can that be?”
That’s not what I’m saying, but neither is it too far off. Not just potholes, and not just spending, but investments in energy-efficient public schools, in human capital, in jobs for the disadvantaged and chronically underemployed, in nutritional assistance and income support for the poor, and in world class airports, broadband, ports, and waterways.
In weak economies, these investments deliver major bang-for-the-buck. The Recovery Act–the oft-maligned stimulus–and related measures were, in fact, highly effective in this regard, but they ended too soon. For example, according to my calculations, if, instead of fiscal consolidation in 2013, we’d invested three percent of GDP in infrastructure, we might have closed the $800 billion output gap that year (the difference between actual and potential GDP). Instead, that gap, though diminished, persists to this day.
And don’t give me any of that fiscal rectitude crap, either. As a card-carrying employee of the fiscally-responsible Center on Budget and Policy Priorities, I can assure you that it’s not temporary, offsetting investments of the type just noted that drive persistent budget deficits. It’s unpaid-for tax cuts and the refusal to square our long-term demands for robust social insurance with our willingness to fund them.
In a lesson learned from the disaster seven years ago, Dodd-Frank includes procedures for the demise of insolvent banks formerly deemed “too big to fail.” As I said, we’ll see if it works and if future policy makers have the spine to try it.
But the need to end the unfair treatment of lenders and recognize that credit is but half the battle when demand collapses are lessons we’ve not yet learned. And that lapse continues to be costly to the majority of Americans who neither lend nor trade money for a living.
Link to article: https://www.washingtonpost.com/posteverything/wp/2015/09/15/the-lessons-of-lehman-learned-and-unlearned/
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Where are they now? The key figures in the collapse of Lehman Brothers
Sep 15, 2015 | The Telegraph
By Marion Dakers
Dick Fuld
Lehman Brothers’ pugnacious chief executive was pilloried as the face of America’s financial failures following the collapse of the bank he led for 14 years.
Mr Fuld was reportedly punched in the face in the Lehman gym shortly after the bankruptcy announcement and soon afterwards disappeared from view, barring the occasional appearance in front of the US committees set up to explore the causes of the crash.
He has refused to shoulder the blame for the crisis, although he said earlier this year that he still thinks about the bank - and the “perfect storm” that led to its demise - every day.
He still works at Matrix Advisors, a boutique firm that he launched in 2009 to carry out consultancy work for mergers and acquisitions.
Ben Bernanke
Ben Bernanke, who held the reins of the Federal Reserve as Lehman went to the wall, spent another six years at the central bank after the financial crisis.
He was named Time magazine’s person of the year in 2009 for his "creative leadership" during the crash. The Fed has yet to raise interest rates from the record-breaking lows that Mr Bernanke's Fed introduced.
Since leaving the central bank in 2014, he has taken up advisory roles at the bond group Pimco, the investment outfit Citadel and the Brookings Institution. His memoirs, entitled The Courage to Act, will be released in October.
For those unable to attend his frequent speaking engagements, Professor Bernanke occasionally delivers his pearls of economic wisdom via Twitter.
Henry Paulson
Henry “Hank” Paulson stepped down as Treasury secretary in January 2009 when George W Bush left office, having stepped in to rescue the mortgage groups Fannie Mae and Freddie Mac on behalf of the US government and set up the Troubled Asset Relief Program (TARP) to support the banks.
He tried to smooth the path for Barclays to buy Lehman as a live business, but the British bank dropped out when it could not get certain guarantees from regulators. It bought parts of the bankrupt firm days later.
Mr Paulson now chairs the Paulson Institute at the University of Chicago, which was founded in 2011 to support Chinese-US relations.
His latest book, “Dealing With China”, was published in May. It covers his decades of negotiating with the nation during his time leading Goldman Sachs and later within the US government.
Tim Geithner
Ben Bernanke and Tim Geithner at Jackson Hole Photo: Bloomberg News
Tim Geithner was president of the New York Fed during the authorities’ doomed attempts to rescue Lehman. He then replaced Mr Paulson as Treasury secretary, serving during Barack Obama’s first term to co-ordinate the administration’s response to the financial crisis.
Since leaving government in 2013, he has taken up the post of president at the private equity house Warburg Pincus. Geithner has also published his own book on the crisis, entitled Stress Test.
His unexpurgated thoughts on the sovereign debt crisis - or as he put it, “a f***ing disaster in Europe” - were leaked last year.
Jeb Bush
Jeb Bush joined Lehman as an adviser after leaving his post as governor of Florida in 2007. Weeks before the bank’s collapse, he flew to Mexico in a failed attempt to get the billionaire Carlos Slim to inject rescue funds.
Dick Fuld reportedly considered asking Mr Bush to phone his brother - George W Bush, the President at the time - to help prop up the bank during its final throes, but eventually decided against it.
Mr Bush also played a role at Barclays following its acquisition of parts of Lehman, earning up to $2m a year to meet clients around the world. He resigned in 2014 to launch his campaign for the Republican nomination ahead of the 2016 presidential race.
Link to article: http://www.telegraph.co.uk/finance/financetopics/lehman-brothers/11839951/Where-are-they-now-The-key-figures-in-the-collapse-of-Lehman-Brothers.html
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Remember the lessons of Lehman’s collapse
Sep 15, 2015 | The Hill - Congress Blog
By Sen. Sherrod Brown
Seven years ago today, the investment bank Lehman Brothers filed for bankruptcy. A day later, behemoth insurance conglomerate AIG was bailed out by taxpayers. Together, these actions helped sink our financial markets and push our country’s economy into an abyss. No one could see the bottom.
Lehman’s collapse – the largest corporate bankruptcy in U.S. history – followed a decade of predatory lending, Wall Street recklessness, and lax supervision by regulators. The subsequent meltdown in the financial markets triggered a crisis that left America’s economy hemorrhaging more than 750,000 jobs a month. By the time we hit bottom, nine million jobs vanished, the unemployment rate soared to 10 percent, and five million Americans lost their homes.
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The crisis – the worst since the Great Depression – took a devastating financial and psychological toll on a generation of working Americans. Families that were struggling to invest in their children’s education or set aside money for retirement saw years of hard work evaporate as $13 trillion in household wealth was extinguished.
Congress responded by passing the most significant financial reforms in generations. The Dodd-Frank Wall Street Reform and Consumer Protection Act put in place new rules to bring stability to the markets, ensure strong consumer protections, and crack down on the reckless and irresponsible behavior that helped fuel the disaster.
Seven years after Lehman’s demise, we have a financial system that is safer, more stable, and that works better for taxpayers, investors, and consumers.
Wall Street reform targeted the risky behavior that rewarded Wall Street executives with multi-million dollar bonuses as our economy spiraled into freefall. The law makes it less likely that taxpayers will once again be left to clean up Wall Street’s mess by footing the bill for another bailout. Its oversight council – supported by industry leaders and regulators appointed by both presidents Bush and Obama – is designed to fill gaps in the regulatory framework and create a forum for agencies to identify risks and resolve issues.
Unfortunately, the Wall Street lobby has changed its tune and is working with its allies in Congress to thwart the council’s ability to do its job. As soon as the bill was signed into law, a top financial services lobbyist said, “Now it’s half-time.” Then they went back to work.
In a May party-line vote, Senate Republicans on the Banking Committee approved a sweeping financial deregulation package that would roll back key provisions of Wall Street reform. It would take us back to a time when no entity was responsible for watching over the entire financial system.
Senate Republicans are now working to move their overreaching bill through the appropriations process, potentially risking a government shutdown in the name of financial industry deregulation. This move – unprecedented in its scale – shows that Republicans will try to slip it through Congress any way possible with as little debate as possible.
In hearing after hearing, Republican members of the Banking Committee and industry lobbyists push for legislation to undermine the new financial rules. In some cases, they argue those safeguards are hurting our economy. It's stunning how they've either forgotten or are oblivious to how much pain the financial meltdown caused to millions of Americans and our economy. Listen to them long enough, and one could be forgiven for thinking we never even had a crisis.
This sort of collective amnesia may reflect just how far we’ve come. Since Wall Street reform’s enactment, the private sector has created 12.8 million new jobs. Household net worth has grown by about $30 trillion, exceeding pre-crisis levels. Business lending is up more than 30 percent. And the banking industry had the highest quarterly earnings ever recorded in the second quarter of 2015.
Wall Street reform isn't perfect – some believe that it should have been stronger – and I've led the charge to fix portions of the law that weren't working. But that doesn't mean we should return to the days of Lehman, AIG, and Countrywide.
Seven years after Lehman, Wall Street reform is working and our economy is getting stronger. Now we need to make sure more Americans feel the benefits of the recovery. Instead of rolling back Wall Street reform we should be working on legislation to create jobs, address low wages, student loan debt burden, and areas where more consumer protections are needed. This will help ensure we won’t repeat the mistakes that almost destroyed the entire economy.
Brown is Ohio’s senior senator, serving since 2007. He sits on the Agriculture, Nutrition and Forestry; the Banking, Housing and Urban Affairs; the Finance; and the Veterans’ Affairs committees.
Link to blog: http://thehill.com/blogs/congress-blog/economy-budget/253559-remember-the-lessons-of-lehmans-collapse
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Seven years on, investors forget harsh lessons from Lehman collapse
Sep 15, 2015 | Sydney Morning Herald
By Ruth Liew
It's been seven years since the collapse of Lehman Brothers that helped spark the global financial crisis, but experts are now warning that a second GFC may be on the cards as investors remain in debt and forget the lessons of the past.
Tuesday marks the seventh anniversary since the destruction of Lehman Brothers, after the investment banking giant filed for the largest bankruptcy filing in US history.
Equity Trustees executive general manager corporate trustee services, Harvey Kalman, said what investors had learnt from the collapse was yet to be fully determined.
Data from Investment Trends showed more than one out of two Australians say another global financial crisis could be on the way.
Lehman had borrowed large amounts to fund its investments, including leveraging and gearing assets, during the years leading up to its demise in 2008. A large chunk of the funds were poured into housing-related assets, which failed following the housing collapse in the US.
"Seven years on, there are more controls over the way collective investment product suppliers operate, although it is arguable whether these have gone far enough," Mr Kalman said.
"In my view a case in point is smaller asset managers that operate a responsible entity where the separation of function is difficult. The regulations are not yet strong enough in this area," he argued.
Matthew Walker, a financial adviser and director at WLM Financial, said Australian investors were heavily in debt with real estate, and some asset managers were also leveraged – indicating many might have forgotten the problems of the past. Data from the Reserve Bank of Australia and Australian Bureau of Statistics show that the percentage of debt to household income was higher than 150 per cent today, compared with about 150 per cent in 2008.
"No, I don't think we've learnt the lessons from Lehman. Debt seems to be high, and it's prevalent now. The saving grace is that we're in a low interest environment but we know that that could change at any moment – and what would happen then?" he said.
Mr Walker's clients have been busy trimming their exposure to risky assets such as shares, and holding more alternative assets and cash as they brace for another potential GFC.
Governments have almost exhausted the levers they have in terms of what they can do to help stimulate economies, while low confidence and anaemic global growth would add fuel to the fire.
The comments come after new data from research house Investment Trends showed that more than one out of two Australians say another global financial crisis could be on the way, and numbers among the top three biggest fears that would affect their investment returns.
Worries about a market crash or second GFC ranked behind China's slowdown and a worsening Australian economy, the data showed.
"Compared to August last year, there's been a significant increase in fear levels among active Australian investors 12 months on," said Recep Peker, head of research for wealth management at Investment Trends.
Financial adviser Mark Draper, from Gem Capital, noted that housing debt levels in Australia for example are now back at levels that are higher than before the 2008 crisis. "My view is that Australians are continuing to bet that house prices will continue to be a one-way bet higher, and are prepared to borrow for it," he said.
"One of the things that provides some comfort at the moment is that there is still a high level of fear among investors – major crisis events tend not to happen when fear levels are so high."
Mr Kalman argued that the focus on the financial services sector and the loss of investor confidence that followed the Lehman collapse did bring some benefits to Australian investors.
Some of these included reforms such as the Future of Financial Advice and Stronger Super, which were still being rolled out and helped buffer investors from massive economic shocks.
"While it is impossible to legislate against greed, after the unprecedented focus on the financial services sector's shortcomings, it would be a terrible indictment of it, our legislators and our regulators if we are again facing the same sort of problems that emerged with the Lehman Brothers' collapse," Mr Kalman said.
Link to article: http://www.smh.com.au/business/banking-and-finance/seven-years-on-investors-forget-harsh-lessons-from-lehman-collapse-20150914-gjm3u6.html
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September 15, 2008: Lehman Brothers Files for Bankruptcy and American Finance Collapses
Sep 15, 2015 | The Nation
By Richard Kreitner
After the collapse of Lehman Brothers on this day in 2008, a lot of publications woke up to the danger posed to the American economy by mortgage-baked securities and other toxic deliveratives. The Nation, as it happens, was on the story as early as 2002, when the journalist Bobbi Murray wrote about them in a piece titled “Wall Street’s Soiled Hands.”
The capital unscrupulously pumped from poor neighborhoods by way of predatory loans whizzes along a high-speed financial pipeline to Wall Street to be used for investment. “It’s about creating debt that can be turned into bonds that can be sold to customers on Wall Street,” explains Irv Ackelsberg, an attorney with Community Legal Services in Philadelphia who has been defending clients against foreclosure and working to restructure onerous loans for twenty-five years. Household-name companies like Lehman Brothers, Prudential and First Union are involved in managing the process of bundling loans—including subprime and predatory—into mortgage-backed securities. They often provide the initial cash to make the loans, find banks to act as trustees, pull together the layers of financial and insurance institutions, and create the “special vehicles”—shades of Enron—that shield investors from risk….
It becomes a complex matrix of financial operations designed to generate capital and minimize risk for Wall Street with the unwitting help of borrowers. “This whole business is about providing triple-A bonds to funds that you or I would invest in,” says Ackelsberg. “The poor are being used to produce this debt—what you have is a glorified money-laundering scheme.”
Link to article: http://www.thenation.com/article/september-15-2008-lehman-brothers-files-for-bankruptcy-and-american-finance-collapses/
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Lehman's psychological scars fuel investor jitters
Sep 15, 2015 | Financial Review
By David Oakley
Psychological scars left by the Lehman Brothers crisis might be playing a part in unsettling markets as investors contemplate the first possible rate rise by the US Federal Reserve in a decade.
With the seventh anniversary of the collapse of Lehman this week - one of the largest bankruptcies in history - investors have warned that memories of the near implosion of the financial system in 2008 still linger. They suggest that this has been responsible for some of the market volatility in recent weeks.
Andrew Haldane, the Bank of England's chief economist, articulated the problem, calling it "dread risk", in a speech in June. This is caused by catastrophic events that generate an exaggerated sense of fear and insecurity, people then tend to overreact to subsequent events or news.
John Roe, head of multi-asset funds at Legal & General Investment Management, said: "The equity fall at the end of August was exacerbated by some nervous, overly cautious investors, who were selling because of fear over what happened in the past rather than fundamentals."
Mike Amey, senior portfolio manager at PIMCO, said: "Psychology does influence market behaviour. Part of the reason for nervousness over increasing rates is the fear of the fear it might cause in the markets."
Mr Haldane also referred to disaster myopia, where fears of the past ease over time. He stressed that the global crisis was the most damaging financial event since the Great Depression, which left its mark on markets and economies for years. "While the psychological scars from dread events fade, they do so only gradually and never fully disappear."
In recent weeks, the Vix Index, Wall Street's so-called fear gauge that measures volatility on the S&P 500, has jumped sharply, at one point hitting levels not seen since October 2011 as investors scrambled for the exits because of worries of a hard landing in China.
Although some investors and strategists insist that China and worries over possible US rate rises on Thursday are the main factors driving markets, they say that persisting memories of the financial crisis may help to spark further volatility, which could then have a damaging knock-on effect on economic recovery.
John Wraith, head of UK rates strategy at UBS, said: "There is a danger that the fear of fear itself will drive markets lower. This could hold back recovery and lead to higher levels of volatility in markets."
Some investors think the Fed will hold fire on rate rises, partly because of fears that markets will overreact to any hint of bad news.
Mr Amey said: "While a close call, we expect the Fed will wait until December to raise rates to give the market time to settle down. Policymakers do not want to go too soon and make the so-called 'hawkish mistake'."
Link to article: http://www.afr.com/news/world/lehmans-psychological-scars-fuel-investor-jitters-20150914-gjmnzb
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Have we learnt any lessons from Lehman?
Sep 15, 2015 | Independent Financial Advisor
By Taylee Lewis
Seven years on from the collapse of Lehman Brothers, Australia remains vulnerable if another global financial crisis hits, says Equity Trustees.Today's NewsIndustry associations welcome leadership spillNew risk adviser numbers to drop, says ClearViewAdvisers best to educate retirees on reverse mortgages, report saysHave we learnt any lessons from Lehman?Industry fund reduces member fees
Harvey Kalman, Equity Trustees executive general manager of corporate trustee services, said that if the global economy is rocked by another credit crisis as it was in 2008, Australia will not be insulated by its mining boom.
"The then strong economy cushioned the impact [in Australia]. Indeed, the Australian economy escaped pretty much unscathed because of its mining boom, fuelled by China," he said.
"This time we will not be helped by the Chinese economy, which instead will likely contribute to any crisis."
Speaking on the seventh anniversary of the Lehman Brothers collapse, Mr Kalman said that while the financial services industry has implemented reform since 2008 to better protect investors, there are still points of weakness.
"Seven years on [from the onset of the GFC] there are more controls over the way collective investment product suppliers operate, although it is arguable whether these have gone far enough," he said.
"In my view, a case in point is smaller asset managers that operate a responsible entity where the separation of function is difficult. The regulations are not yet strong enough in this area.
"Another area of concern in funds management is that Australian Financial Services Licences (AFSLs) do not differentiate between issuers of simple products and those that issue complex products – such as long/short equity funds with gearing and leveraging.
"Any crisis that impacts on equity markets may well expose these shortcomings to the cost of investors," Mr Kalman said.
He noted that it is too early to understand whether the industry has implemented the reforms needed to manage another global credit crisis.
"We won't know until the next crisis unfolds whether we missed the opportunity to improve in all respects," he said.
Link to article: http://www.ifa.com.au/news/15083-have-we-learnt-any-lessons-from-lehman
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Lehman’s Mythical Fall Seven Years On: Banks With Higher Balances, But Working
Sep 15, 2015 | The Corner Economic
By Julia Pastor
In September 2008, the terrible impact of the so-called subprime mortgage crisis had already hit the markets. Banks were not lending to each other, causing a severe credit crunch, while central banks had injected liquidity on a large scale for the first time.
But the fall of Lehman Brothers will likely appear in the history books as the Big Recession’s starting point. Unlike U.S. investment bank Bear Stearns or the UK’s Northern Rock, Lehman’s was not nationalised, which could have made a difference. Analysts agree, however, that the crisis had already been triggered.
“Lehman’s bankruptcy was very significant because it was followed by the collapse of other entities. It was also a point of reference,” explains Ángel Pérez, analyst at Renta 4. Pictures of the firm’s employees taking their belongings out of the Wall Street headquarters were circulated around the world.
However Jaime Pérez- España, Eurodeal’s expert, thinks that
“the global financial system was already damaged and the fall was a forgone conclusion. A scapegoat was needed and Lehman had a bad reputation, having tried to place its overdraft facilities within the system. Furthermore, the disagreements with the monetary authority were well known.”
One of the lessons from that bankruptcy was understanding that “too big to fail” banks were a risk for the global economy. Currently there are 30 entities included in this category, the Office of Financial Research (OFR), an independent body of the U.S. Treasury, recently reported. The objective was to provide these with tailor-made regulation aimed at reducing their size and complexity and avoiding future disasters. To what extent has that been achieved?
“Banks have contracted a significant part of their operating system. After financial bail-ins, the banking system can do its work, giving credit and so on. They are working normally again. Furthermore, they reduced their investment operations. For example, leveraged products have almost disappeared,” affirms Pérez-España.
On the other hand, Renta 4 says “the banks’ capital stock has not increased, but assets on their balance sheets have. Capital requirements from regulators are stronger than ever. We have seen a consolidation process in the financial sector: now we find a bank where previously there were 10 savings banks.”
After Lehman Brothers, there were several extreme situations during the crisis which were comparable to that.“Financial rescues in some European countries, mainly Greece. Also the moment when Spanish bond yields reached 7%. They were all turning points in the crisis.”
The Chinese market’s current deceleration is yet another phase. Fears are increasing over a dramatic slowdown of the economy that has dominated the world for the last eight years –China grew by 8.6% annually and generated half of global production. Despite all that, it would seemingly have nothing to do with Lehman Brothers’ collapse. Investors behave more cautiously, but they don’t stop their activity. For example, foreign investment in Spain reached 48%.
“Investors could decide to invest in their home markets, or even not to invest at all, but they continue. It’s true that stock markets have fallen, but not significantly for the time being. I think it is a good opportunity to bet on equities,” says Ángel Pérez.
Link to article: http://thecorner.eu/uncategorised/lehmans-mythical-fall-seven-years-later-banks-with-higher-balances-but-working/48101/
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Lehman Day: Making Fun of the Second Great Depression Crowd
Sep 14, 2015 | Huffington Post
By Dean Baker
This week marks the 7th anniversary of the collapse of Lehman Brothers, the huge investment bank. This collapse set off the worldwide financial panic that brought Wall Street to its knees. The anniversary of this collapse, September 15th, is the day set aside to ridicule the people who warned of a second Great Depression (SGD) if the Treasury Department and the Federal Reserve Board didn't rescue the Wall Street banks.
Just to recount the basic story, there is no doubt that without a government bailout most of the big Wall Street banks would have gone under. Citigroup and Bank of America were both effectively bankrupt and remained on life support with hundreds of billions of dollars of government subsidized loans well into 2010. The remaining investment banks, Merrill Lynch, Morgan Stanley, and Goldman Sachs were all facing bank runs. These would have been unstoppable without the helping hand of big government. Many other financial institutions also would have been brought down in the maelstrom, but these giants were for sure dead ducks at the time of the bailouts.
There is no doubt that the initial downturn would have been more severe if the market was allowed to work its magic and put these banks out of business. But the question the SGD gang could never answer is how this collapse would prevent the government from boosting the economy immediately afterward? After all, then Federal Reserve Board Chair Ben Bernanke once ridiculed people who questioned the ability of the government to boost the economy, commenting the government "has a technology, called a printing press... ."
Rather than sitting through a decade of double-digit unemployment, why would Congress not pass a large stimulus package supported by aggressive monetary policy from the Fed? There certainly was no economic obstacle to this path. And the claim that political gridlock somehow would have prevented any stimulus flies in the face of history. Even Republicans have supported stimulus to counter economic slumps. For those too young to remember, the last such incident was the stimulus package signed by President George W. Bush in February of 2008, when the unemployment rate was 4.7 percent.
In short, the idea of the government sitting paralyzed while the unemployment rate sat in the double digits is entirely an invention of the SGD crew. It has no basis in the real world.
It is easy to see why the SGD myth persists. Most obviously, the big Wall Street banks like to pretend they did us all a favor by letting the government bail them out. In their story the bailout wasn't about saving Goldman Sachs and Citigroup, it was about rescuing the economy.
The second important group that has a major interest in promoting the SGP myth is the politicians who pushed through the bailouts. They naturally want the public to believe that the purpose of the bailouts was to help the country, not their former and future employers. The more central they were to the bailout the more likely they are to push the SGD story. In former Treasury Secretary Timothy Geithner's autobiography a reference to the SGD appears on almost every page.
The third key group that has been promoting the SGD myth is the economists and policy-types (including reporters) who deal with macroeconomic and financial issues. Their reason for promoting the SGD story is that they need cover for having failed to recognize the housing bubble and the severe downturn that would be an inevitable outcome of its collapse. The SGD myth goes along with the idea that the collapse and continuing weakness of the economy is all very mysterious.
They want the public to believe that the issues involved are complicated and beyond the understanding of normal people. This is why their focus is always the financial crisis. After all credit default swaps and collaterized debt obligations can be complicated.
On the other hand, the basic story of the housing bubble was pretty damn simple. When the country saw an unprecedented run-up in house prices it should have caught some economists' attention. After all, the U.S. housing market was the largest market in the world and it was not previously subject to erratic fluctuations of this sort.
The huge construction boom driven by the bubble was also not a secret. Nor was the flood of dubious loans, which even at the time were the subject of jokes about their poor quality by people in the industry.
In short, the story of the housing bubble and the devastation wreaked on the economy by its collapse is a simple one that the great minds of the economics profession should have all seen coming.
Rather than acknowledge that they made a colossal blunder, it's much better to build up the myth that it's all so complicated. And, if we didn't give Wall Street everything it wanted, we would be subject to the curse of the SGD.
Link to blog: http://www.huffingtonpost.com/dean-baker/lehman-day-making-fun-of_b_8137012.html
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Sep 14, 2015 | The Daily Mail - This is Money UK
By Hugo Duncan
Britain and the United States were at the epicentre of the financial crisis that claimed Lehman Brothers seven years ago today.
The dramatic collapse of the 158-year-old banking giant, on September 15, 2008, plunged the world’s already teetering financial system into crisis and triggered a brutal global recession.
Seven years on, the British and American economies are now among the strongest in the developed world with both the Bank of England and Federal Reserve looking at raising interest rates for the first time since the crash.
The Fed, led by Janet Yellen, could make its move this week. But the prospect of higher interest rates comes at a time of mounting concern over the state of the global economy – and the onset of the next crisis.
There is particular anxiety over China and other emerging markets from Brazil and Russia to South Africa. Uncertainty in Greece and malaise in the wider eurozone economy continues to cause alarm.
It has been a torrid summer for investors with markets around the world swinging violently.
Shares in China were on the slide again yesterday, with the stock market in Shanghai down another 2.67 per cent, taking losses since June in what has been dubbed ‘The Great Fall of China’ to 39.71 per cent.
The rout has taken its toll on commodities and emerging market currencies – and left investors across the West in a jittery mood.
Last month was the worst for the FTSE 100 index in London for more than three years and the blue chip benchmark is nearly 15 per cent off the all-time high reached in April.
Former US Treasury secretary Larry Summers warns: ‘We could be in the early stage of a very serious situation.’
Watchdogs, including the International Monetary Fund, the World Bank and the Bank for International Settlements, are concerned about the onset of another crisis.
Consultants at McKinsey believe that global debt has risen by £37trillion or 17 per cent of global income since the fall of Lehman.
A report by BIS warns that debt levels have reached extreme levels – leaving the financial system vulnerable to higher interest rates in the US.
Claudio Borio, chief economist at BIS, warns it is ‘unrealistic and dangerous to expect’ that central banks ‘can cure all of the global economy’s ills’ through low interest rates and money printing and BIS is calling for an end to the era of ultra-cheap money.
The IMF and World Bank are not so sure and have urged the Fed to delay ‘lift- off’ until later this year or even next year given the state of the global economy.
Much of the concern stems from China which has become an increasingly important driver of world growth in recent years.
Economic output in China rose by 7.4 per cent last year – its slowest pace in 24 years – and Beijing looks set to struggle to meet its full-year growth target of ‘around 7 per cent’ this year.
Figures from the Organisation for Economic Cooperation and Development show growth across the G20 remained steady at 0.7 per cent in the second quarter.
But while countries such as China, India, the UK and the US continue to grow, Canada, Brazil, Japan and South Africa all suffered contraction. Growth remains muted in the eurozone and non-existent in France.
Willem Buiter, a former Bank of England official and now chief economist at Citigroup, says there is a 55 per cent chance of another global slump in the coming years.
Vince Cable, the former Liberal Democrat business secretary in the last Coalition government, insists the world is not heading for ‘a new Lehman moment’.
But he warns of ‘unknown unknowns’, adding the global economy is ‘very fragile’ and the eurozone ‘is in a terrible mess’.
Lord Turner knows what it is like to be taken by surprise. He was appointed chairman of the now defunct Financial Services Authority, a week after the collapse of Lehman.
‘We faced the biggest financial crisis in 80 years,’ he writes in his new book, Between Debt And The Devil. ‘Seven days before I started, I had had no idea we were on the verge of disaster.
Turner warns that ‘excessive’ debt could cause the next crisis.
Of course, he was not alone in being taken by surprise by the last crash. The Queen famously asked in spring 2009: ‘Why did no one see this coming?’
The answer, from the British Academy a few months later, was that there had been ‘a failure of the collective imagination of many bright people’.
Seven years on, the storm clouds are gathering once again, as the world struggles to bounce back from the collapse of Lehman and its painful aftermath.
Link to article: http://www.thisismoney.co.uk/money/markets/article-3234192/The-gathering-storm-Fears-new-crisis-seven-years-Lehman-Brothers-fall.html
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R.I.P. Lehman: equities seven years on
Sep 15, 2015 | Financial Times
By Staff
So what has changed since the dramatic collapse of risk-taking investment bank Lehman Brothers seven years ago? Put simply, stock market valuations have improved greatly but companies' performances have not exactly matched this growth.
As the below charts show, the S&P 500 US equity index, a benchmark for global investors, has enjoyed a series of stunning runs in the last seven years, Naomi Rovnickwrites. But while companies' operating profit margins initially soared post-Lehman, they have fallen this year after flat-lining for much of 2011-2013, meaning investors are paying more for less.
That is partly thanks to the US central bank having held off raising interest rates since 2006, with the result that cheap money has flowed into stocks.
The US economy has improved also, of course, with equity valuations reflecting this good news.
The seventh anniversary of Lehman's collapse, which falls on Tuesday, coincides with the build up to a highly anticipated Federal Reserve meeting that many in financial markets think could be the one where borrowing costs are finally raised.
Such a move is not predicted to cause a Lehman-style shock to markets, but it may be enough to prompt investors to look at companies' fundamentals more closely.
Link to article: http://www.ft.com/intl/fastft/391261/r.i.p-lehman-seven-years-on
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Seven years since the Wall Street crash
Sep 15, 2015 | World Socialist Website Blog
By Nick Beams
The bankruptcy of the US investment bank Lehman Brothers seven years ago today signalled a breakdown of the global capitalist economy and financial system that continues to deepen.
Within hours of Lehman’s demise, it became clear this was not simply the failure of an individual bank, but the expression of a crisis engulfing the entire US and global financial system. At that point, US financial authorities stepped in to bail out American International Group (AIG), a transnational insurance giant that threatened to go under and take the entire American and world financial system with it.
This was the start of a process that has since seen central banks around the world continually increase the supply of ultra-cheap money—the US Federal Reserve alone has pumped out more than $4 trillion—to finance the speculation and parasitism of the banks and finance houses. These measures have done nothing to alleviate the crisis. On the contrary, they have created the conditions for another disaster.
This is evidenced by the recent violent fluctuations on financial and currency markets, including the fall of the Chinese stock market and collapse of some emerging market currencies in South East Asia to their lowest point since the Asian crisis of 1997–98.
Issuing the latest quarterly review of the Bank for International Settlements at the weekend, the bank’s chief economist, Claudio Borio, noted that “debt levels are too high, productivity growth too weak and financial risks too threatening.” Referring to the most recent market turbulence, he warned: “We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over years along major fault lines.”
Not only have none of the underlying contradictions that led to the crisis of 2008 been overcome, the very measures adopted over the past seven years have intensified them.
Parasitism—the accumulation of wealth through financial market speculation completely unrelated to productive activity, and, indeed, inimical to it—has grown to unprecedented heights, while the real economy has stagnated.
Economic output in Europe, one of the central components of the global economy, has still not returned to the levels it attained in 2007. And, as the International Monetary Fund and other major economic bodies have pointed out, investment levels in the major capitalist countries—the key driver of the real economy—are at least 25 percent below pre-crisis levels, with no prospect of revival.
At the same time, Chinese economic growth is falling while so-called emerging markets, once held out as a new basis for global capitalist expansion, are experiencing lower growth or outright contraction amid fears of a major financial crisis if interest rates in the US begin to rise.
One day after the collapse of Lehman Brothers, the World Socialist Web Sitespelled out its implications in an analysis that has in the intervening period been fully confirmed: “A sea change is unfolding in the US and world economy that portends a catastrophe of dimensions not seen since the Great Depression of the 1930s … These events are signposts in the historic failure of American and world capitalism. For the working class, they mean a rapid growth of unemployment, poverty, homelessness and social misery.”
In the immediate aftermath of the collapse, the leaders of the major capitalist powers pledged cooperation and collaboration as they tackled the crisis. Those commitments have long gone by the board, replaced by intensifying conflicts over control of markets, competitive currency devaluations and divergent policy measures.
As in the Depression of the 1930s, the capitalist breakdown has fuelled the drive to war in every part of the world. American imperialism, under the Obama administration, has intensified the drive to bring the vast Eurasian landmass and its economic resources under its control, launching a series of provocations against Russia in the West and making preparations for war against China in the East under the so-called “pivot to Asia.”
German imperialism has initiated a campaign to reassert its position as a global power, while the Japanese government of Prime Minister Abe is moving to do away with restrictions on military activity imposed under the post-war constitution.
In every country, the term “austerity” has become a by-word for deepening attacks on the working class amid rising inequality and social misery. As the wealth of the upper layers increases, wages decline and health care, education and other basic social services are targeted for endless cuts.
The bogus “war on terror” has become the justification for the shredding of fundamental democratic rights and the development of ever more authoritarian forms of rule. This is one of the clearest indications that the ruling classes themselves know they have no solution to the economic breakdown and are preparing to meet the social struggles it must produce with mass repression.
The past seven years of economic breakdown, coupled with the threat of world war, growing repression and poverty, and the creation of the largest number of refugees since World War II, testify to the historic bankruptcy of the capitalist system. That understanding must form the basis for the development of a political struggle of the international working class against war and in defence of social and democratic rights against the financial elites and their governments.
Link to blogs: https://www.wsws.org/en/articles/2015/09/15/pers-s15.html
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