Posts Tagged ‘Lehman Brothers’
This week is the 5th anniversary of what most deem to be ground zero of the Global Financial Crisis. This time 5 years ago markets and the world were reeling from the Bankruptcy of Lehman Brothers, revelations that counter party agreements that AIG had within the financial system were threatening a cataclysmic meltdown and the freezing of credit markets was pushing the world to a precipice never seen before.
What started as a small housing bubble focused on low quality loans in the U.S. turned into a tsunami of bad debt domino’s that threatened to be our generations great depression, although 5 years on it can perhaps be likened more to McCarthy’s domino theory that never actually fell. I read with interest over the weekend the articles looking back over this time and noted that one included quotes from Gail Kelly that some Westpac customers were lining up with suitcases to get their money out and that all four major banks were in contact with each other, the Government and the RBA.
Perhaps most alarming was how close we did come to the edge, which was best illustrated in the HBO movie (a great watch if you are interested in these events) ‘To Big to Fail’ when the chief executive of General Electric, Jeff Immelt, places a terrified call to Paulson (U.S. Treasury Secretary) saying that GE can’t borrow. GE is standing in for every Real American manufacturing company. We are reminded it makes light bulbs and washing machines. Paulson is shocked that such a stalwart could be having trouble borrowing. (Note that GE also had a big financing arm that relied on the credit markets!)
But……..even after all of these events, the sun came up each morning, most people continued to go about their daily business and today, 5 years on, we wake up to the news that the Dow Jones is again at record highs. I noted recently to one of my colleagues that it is always darkest just before the dawn, and in those pre dawn hours of late 2008 and early 2009 it felt like we would never see the sun again.
So here we stand 5 years on, the world continues to spin on its axis, people continue to go about their lives and whilst some are a little bruised and battered the strategy we had at the time of staying in your seat, focusing on what you can control and taking a long term view has yet again proven to be the wisest course of action. In fact in most cases when it comes to investment taking no action is sometimes the best action.
After all, the day after tomorrow will always be waiting for us.