Quick Thought Of The Week: Lehman

A full version of this video was published on Stock Addvisor Singapore & Stock Advisor Gold.

Just that one word, “Lehman”, is enough to send a shiver down my spine.

But for many young people today – those who work in banks, the finance industry, analysts, talking heads, and even politicians, it is just something that happened ten years ago.

They have little idea about how close the world, not just the financial world but the whole world, came to Armageddon.

When investment bank, Lehman Brothers, collapsed, it sent shock waves around the world on 15 September 2008. There was a sudden realisation that the financial system was not nearly as robust as many had imagined. It was rotten to the core.

Banks no longer trusted anyone, least of all each other. That speaks volumes.

They had no idea which bank would be the next to fall. So, they simply stopped lending to each other.

Liquidity died up. Queues formed outside some of the more vulnerable lenders as depositors waited in line to withdraw their savings. No words of assurance were enough to soothe their frayed nerves.

A bank run is not something any of us want to witness, ever. Cash machines were in danger of running out of readies. All it took was a wild rumour or a badly-chosen word to send savers into a panic.

One lender after another had to be rescued. Some banks had to venture overseas to look for fresh injection of capital. Some had to turn to wealthy individuals. Some turned to other banks.

Some say that today’s financial system has been repaired. And that banks are now safe again. They are right up to a point.

But ten years after the collapse of Lehman Brothers, lenders are still vulnerable. They will always be vulnerable because that is the nature of their business.

There is likely to be another financial crisis. But it won’t be like the last one. It never is. So, choosing which lender to put our money into is absolutely vital.

A version of this article first apperared in Stock Advisor Singapore & Stock Advisor Gold.

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