This is a very important week. It’s not important because of the stunningly strong US labour report last Friday or because the US dollar has begun to fight back a little or because West Texas oiI has dropped back below USD 50 pbb again. It is an important week because it marks the 10th anniversary of the beginning of the global financial crisis (GFC). In popular thinking the big anniversary will be September 15th 2018, the tenth anniversary of the pirate ship Lehman Brothers but the starting gun went off on August 9th 2007 when BNP Investment Partners froze three of its structured credit funds, explaining that the absence of liquidity for some of its subprime mortgage structures has evaporated and that it could therefore no longer value the funds.
What followed was a year of panic driven by the implosion in trust in the solidity of leveraged counterparties in the money markets and with it came the end of Bear Stearns, of Merrill Lynch and, ultimately, of Lehman Brothers. Along the way the likes of IKleinwort Benson disappeared off the map and the last really big trade of the period, the ludicrously expensive acquisition of ABN-Amro by Royal Bank of Scotland and its megalomaniac CEO, Fred “The Shred” Goodwin. It also brought some terrible public market bailouts such as Lloyds Bank absorbing the other Scottish flag carrier, the terminally toxic HBOS or Bank of America taking over the cancerous mortgage lender Countrywide. Other great names such as Dresdner Bank were to disappear from the docket as well as pretty much every Italian and Spanish regional bank name we’d grown up with.
Ten years on we are sitting on a construct which calls itself a financial market but which is in reality a dog’s breakfast of artificial money, manipulated interest rates, false currency parities and growth funded by debt, debt and more debt. All the while we are treated to a political elite and a fourth estate obsessed by not causing offence to anyone and therefore utterly incapable of facing up to the realities of a society living way beyond its means.
No wonder so many people are scratching their heads when it comes to figuring out markets. Dog's Breakfast is an apt description...
My re-collection is it is the same date (9/8/07) that the UK bank, Northern Rock, ran into strife and was later nationalised. But go back about 7 months earlier to HSBC Finance Corp's results and you'd see the rot well and truly settling in despite Bernanke's vain hopes.