Ten Years Since Lehman: Biggest Driver of 2008 Financial Crisis Has Only Got Worse
By: GoldCore
GoldSeek.com
Tuesday, 11 September 2018
by John Stepek of Money Week
– The “Lehman moment”… could it happen again?
– The finance industry is infested with moral hazard
– Even more moral hazard today sowing seeds of next crisis
– “Next crisis will not look the same as the 2008 crisis”
A decade ago this week, in the US, the government had just nationalised government-sponsored mortgage lenders Fannie Mae and Freddie Mac.
In the UK, the then-chancellor, Alistair Darling, had, at the tail-end of August, given The Guardian one of the most honest interviews ever given by a serving Cabinet minister, in which he warned that we were facing the worst financial crisis in 60 years.
In short, we all knew things were turning bad.
But the full-on tipping point came with the demise of Lehman Brothers, which was barrelling towards the end of its existence.
This week, ahead of the tenth anniversary of the “Lehman moment”, we’re going to be looking at what happened, what’s changed, and whether it could happen again.
Today I want to start with one of the most important concepts you have to understand in order to grasp what went on.
That’s a phenomenon with the rather curmudgeonly name of “moral hazard”.
The finance industry is infested with moral hazard
The notion of moral hazard originated in the insurance industry. It’s a very simple concept. It refers to the danger that if someone is insured against a loss, then they won’t take the necessary steps to prevent that loss from happening in the first place.
So, used more widely, moral hazard is what you get when an individual’s actions are divorced from their consequences. Or as Paul Krugman (loosely paraphrased) puts it, it’s when you take the risk, but someone else bears the cost.
This one notion explains why the entire financial crisis happened.
The Rest…HERE
