- Posted September 27, 2013 by
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Deep Blue Group pr code 34917919028: The next financial crisis
Five years ago, this week, the world of finance and economics changed forever.
At least that's the story.
It started with a sad milestone in Wall Street history: the fall of the House of Lehman.
Between Sept. 13 and Sept. 20, 2008, Lehman Bros., the legendary 158-year-old Wall Street firm, wobbled, stumbled and finally ceased to exist. In the conventional narrative, the failure of Lehman and the equally storied trading outfit Bear Stearns was part of an epic, once-in-a-generation meltdown in which global financial markets collapsed simultaneously in ways that nobody could have possibly foreseen.
But some people did foresee the disaster. I was one of them.
In July 2007, shortly after the Dow Jones industrial average crossed 14,000 for the first time, I wrote a column for this page with the headline "14,000 reasons to be skeptical." My point was that if you looked through the euphoria and focused on the wild flows of capital and massive increases in debt, it looked like a classic bubble. And history does not treat bubbles kindly.
Although I didn't know the bubble would burst immediately, within a month the Dow had fallen more than 1,000 points to less than 13,000. From there, the rout was on.
By the time the real crisis hit and Lehman and Bear Stearns imploded, the Dow was below 10,000. The S&P 500 index was down almost 30%. The market was waiting for more bad news.
But that was five years ago. Surely in the intervening half a decade we've made the necessary changes to create safer financial markets that aren't as susceptible to damaging excess and are insulated enough that they can't crush the overall economy?
In a word, no. Indeed, there have been practically no structural changes in our financial system at all. The systemic risks of another bubble booming and busting remain as acute as they were five years ago. All that's different, for now, are the surrounding economic conditions.
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