Hello and welcome to this month's edition of Investment
Insights, which marks the 5th anniversary of the bankruptcy of
The official collapse of Lehman (and the unofficial collapse of
Merrill Lynch at the same time) is deemed by many to be the
epicentre of what we call the Global Financial Crisis, and which
triggered what the rest of the world calls the Great Recession.
There have been countless articles written about what occurred
during the most tumultuous period of our financial generation (we
hope), so we have gathered for you some of the more interesting
ones. Perhaps the most interesting is this piece which
summarises the crisis in 73 headlines, taken from the day
Lehman filed through to the Dow hitting record highs again. It was
at that moment, that point in time, that many recall their
perception of markets, economies, and risk and return had changed
this piece from The Age, a banker describes hearing the news as
"the moment when credit markets realised banks can go
broke'', and that this realisation changed the way
investment markets would think for a long time, possibly
But have we learned anything five years on? In this
short 4 minute interview with Barry Ritholtz, author of the
book Bail Out Nation (whom we regularly feature in these
articles), he argues that we haven't learned much as we now
have a higher concentration of risk in a smaller number of banks.
He also argues that there was no prosecution of the people who
allowed the crisis to happen, nor were the regulators held to
account for allowing it to happen. He follows this up with an
extremely inflammatory piece making the case that
some in the financial industry continue to commit crimes. He
cites examples over the past century that seem to repeat themselves
over cycles, with Bernie Madoff being just the most recent example
of a Ponzi scheme, which of course got its name from none other
Mr Charles Ponzi himself way back in 1920.
Daniel Minihan, our Director of Wealth Management, posted his
own piece on the
5 year anniversary albeit with a different take, looking at the
advice of the time. That advice was to stay invested, focus on the
long term and ride out the fall because eventually it would turn
around. Whilst this had always been the prevailing view when
markets were crashing, there was no greater test than 5 years ago.
Today, whilst the Australian market has not recovered all of its
losses, the U.S. has done so. Despite
constant reports of the death of various world economies, the
recovery continues to slowly gather pace.
For those that got out at the top and in at the bottom:
congratulations, you have won the lottery. For those that stayed
invested: you should now be seeing the results of staying the
course. For those that got out and haven't got back in...
remember that it's the long term that counts.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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