Last week marked ten years since the financial crisis hit.
On August 9 2007, BNP Paribas froze three of its American funds, the first in a chain of events which would lead to the biggest recession since the Great Depression. These funds were tied to American subprime mortgages and the freeze was the first public acknowledgment that even the experts — even banks themselves — could not figure out what these funds were built upon.
This led to a knock-on effect that led to the collapse of Bear Stearns (June 22, 2007) and then the big one, Lehman Brothers (September 15, 2008). I remember the collapse of Lehman Brothers well as the news spread on the Sunday, just as Sibos was kicking off in Vienna. The result was that half the bankers flew out of Vienna on the Monday and Sibos was a shadow of its normal self. That’s when I would mark the real start of the financial crisis.
Some others would mark the crisis as starting on September 14, 2007, which is when Northern Rock collapsed. You name your day. Since then, America has recovered well thanks to TARP (Troubled Asset Relief Program) and the UK thanks to QE (Quantitative Easing), but Europe is struggling. Italian, Spanish, Greek and Portuguese banks and economies have flat-lined for the past few years, and there are concerns over the general stability of Europe as a whole post-Brexit.
There is then the growing concern of a second financial crisis. The Bank of England called a concern over consumer debt at the end of July, and that there may be a second crisis bubbling. This one in the UK would not be as big as the last however, as the 2008 crisis required a bailout of over £1 trillion. £200 billion seems less significant in contrast. However, the fact that unsecured consumer debt in the UK and USA has exploded to levels above 2008 should be a concern. as is shadow banking in China and the challenge of sustaining two decades of strong growth.
It makes you wonder how we could allow another financial crisis when we should have learnt our lessons from the last one, but then America did repeal Glass-Steagall that was meant to have fixed the Great Depression crisis but, instead, then led to another one. We never learn. However, some things have happened that should be encouraging, such as financial regulators working together globally for the first time ever.
Equally, the thing that resonates the most for me is that they year the crisis hit in 2007 is when cloud, the iPhone and the revolution in open sourced technologies hit. It has taken a decade to mature, but the whole FinTech market has risen thanks to these technologies. In other words, we had a perfect storm of new technologies enabling a revolution in finance whilst financial firms were imploding due to imperfect decision making.
Interesting times indeed.
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