Last Saturday was the tenth anniversary of the bankruptcy of US investment bank Lehman Brothers. Reason enough for a review of the past decade, an appraisal of global financial systems and a look into the future.
Financial Crisis 2008/2009: How the Debacle Began
The trigger for the financial crisis of the time is usually called the bankruptcy of Lehman Brothers , but basically it acted as a catalyst for the subsequent global financial crisis. Even before the largest bank failure in US history, large financial institutions were facing the end. As early as 2007, two banks had to be rescued by the taxpayer due to the billions in losses caused by the US housing crisis. These were the US investment bank Bear Stearns and the German Mittelstandsbank IKB .
The “root of all evil” was the practice of lending real estate in the US to borrowers with a low credit rating. Because US interest rates were gradually raised to more than five percent in mid-2006, many Americans were unable to pay their installments, which led to a slump in real estate prices.
But because all these loans were packaged into derivatives and sold all over the world, the crisis was not limited to the US, but mutated into the global financial crisis . Even credit default swaps – so-called credit default swaps – could not function because of the sheer size of the insured loss incurred.
After the US government refused to rescue Lehman Brothers in September 2008, all the dams on international money markets collapsed. No financial institution wanted to lend another because of the enormously increased risk money, after all, no one knew who next met with insolvency. Central banks had to provide liquidity at zero cost and billions in order to avoid a collapse of financial systems.
At the height of the crisis, Chancellor Angela Merkel was even forced on October 5, 2008, to guarantee the security of all German savings deposits together with then-Finance Minister Peer Steinbrück. Less than four years later, ECB chief Mario Draghi had to use equally strong words in his July 2012 “Whatever-it-takes” speech to prevent a collapse of the euro. Although it has calmed down in recent years, as no similarly large rescue measures were on the agenda – but the rest is currently making a relatively deceptive impression.
Mountains of debt as far as the eye can see
However, avoiding a meltdown of global financial systems has had a high price, which has multiplied the balance sheets of the two main central banks, the Fed ($ 4.2 trillion) and the ECB ($ 4.6 trillion), within a decade (see table). As investors have become accustomed to ultra-expansive monetary policy and cheap money has driven up asset classes such as bonds, equities and real estate, the weaning of extremely low interest rates is likely to be a very difficult undertaking and a tightrope walk or balancing act in adverse weather conditions ,
|Balance sheet totals of the central banks|
|United States||4.21 trillion dollars|
|euro zone||4.61 trillion euros|
|Japan||550.9 trillion yen|
|Great Britain||592 billion pounds|
|China||36.26 trillion yuan|
Should global economic growth weaken significantly or even become negative or interest rates rise sharply as a result of international trade conflicts, heavily indebted households, companies and governments are likely to face massive problems with debt-fund re-financing – we do not even want to talk about amortization in this context ,
Outlook for the current week
The US economy, despite all prophecies of doom, continues to outstrip its relative strength. The belief in the dollar seems to be firmly anchored among investors, despite unpredictable US policies and the unresolved trade dispute between the US and China. As a “safe haven”, it exerts a strong appeal in the face of latent risks. Much capital is flowing thanks to the prospect of further rising US yields in the US. Ten-year US government bonds yield almost three percent, which German investors can only dream of. Less inflation but nothing left net.
Normally such low (USA) or negative real interest rates (Germany) are used as an argument for the purchase of gold. But obviously the ten years after Lehman Brothers are still far from normal.