The last days of Lehman Brothers 2008
I’ve gained a lot of insights on the financial crisis of year 2008 after watching the finance documentary of “The Last Days of Lehman Brothers Moral Hazard 2008” that produced by BBC. On top of that, I had a better understanding of the development of the world economy, its development is closely related to the judgment and decision-making of policy makers, hence the mistakes of policy makers may cause financial crisis within the country and worldwide which makes the economy extremely fragile. The documentary also emphasis on the difficulties of making decisions by the bankers and minister of finance in the U.S whether to save Lehman Brothers from bankruptcy especially when they were running out of time and it gave me a mini heart attack while watching it.
The main reason that causes Lehman Brothers to bankrupt
is the human nature of greed. The CEO at the time of 2008, Dick Fuld could have
sold Lehman Brothers with decent price few months before the collapse happened,
but the price was never high enough to fulfill his greed. Lehman Brothers was
burdened by too much of toxic assets and no other banks would want to buy it or
bailout the drowning bank. In my opinion, the credit default swap was a very
clever and profiting financial instrument derivatives which made the banks tons
of profits. However, they neglected the risk behind it and could only see the
profits where they were giving out credits rating on the CDS which they didn’t
even analyzed the value of it. In addition, the subprime mortgages had created
a giant bubble back then and it eventually burst when the borrowers were not
able to repay their loans. It reminds me a saying of “You reap what you sow”,
thus risk management is very important which not only for banks, individuals
like us must manage risk carefully in order to prevent any unwanted events.
“Someone has to fail”, a sentence fill with sorrow but truthful from
Paulson in the documentary. Lehman Brothers had to fail, Dick Fuld had to fail
in order to curb the terrible situation from going worst. Perhaps it explained
why the Barclays Bank did not bailout Lehman Brothers in the end. From my point
of view, if the acquisition were to succeed, it was only to extends the life of
Lehman Brothers but the problem wouldn’t be solved and it might lead to a more
powerful crush towards the financial world. Besides, are banks like CitiBank,
JP Morgan, HSBC Banks too big to fail? If I were in the situation which before
the financial crisis of year 2008, I could never imagine that Lehman Brothers,
with a history of 150 years in banking industry would have end up like this, and
I personally think that 95% of people couldn’t see that coming as well.
However, the fall of Lehman legacy had proven that a bank was never too big to
fail. Even with the size of Lehman Brothers, a bank would still collapse if the
risks are not properly managed by the directors.
To conclude, the collapse of Lehman Brothers is a very useful example and
warning for the financial world. Banks regulators are now more stringent on the
minimum capital requirement as well as emphasizing on liquidity risk. Besides,
leverage is a “double-edged knife” as it could generate decent profits for
banks but over-leveraging would hurt the banks. Countless of people had
suicided, went bankrupt, and vary tragedies happened during financial crisis of
year 2008. Nevertheless, ten years has past and the economy is on the track to
recover. According to rumors, there is a curse saying that financial crisis would
happens once in every ten years which shown by the financial crisis of
Southeast Asia in 1997-98, the collapse of Lehman Brothers in 2008. However,
would there be another financial crisis occur in year 2018-19? I have no idea,
and I am certain that nobody has an accurate answer because it is not
predictable, but I am sure that it would happen in the future due to the human
nature of fear and greed, which is said by one of the greatest investor of all
time, Sir Warren Buffet. In fact, that are many issues rising globally which are
harming the economy system such as the trade war between US and China, currency
crisis on emerging markets due to the increasing interest rate, fluctuation of
oil prices due to the sanctions against Iran and the case of reporter killed in
Saudi and etc. Even though we are unable to predict the next financial crisis,
but we are able to prepare and take cautious action to minimize the impact it
could bring to us by managing risks and diversify out portfolio effectively.
No comments:
Post a Comment