(Roughly) Daily

This weekend marks the 10th anniversary of the collapse of Lehman Brothers (the largest bankruptcy in U.S.history) and the start of the Great Recession.  We took a look at the crisis, it’s dimensions, and its aftermath last month (“Not every business cycle has a financial crisis. Frequently they do“); but there’s so much to remember– and so many may smart folks from whom to learn…

In “From Trump to Trade, the Financial Crisis Still Resonates 10 Years Later,” Andrew Ross Sorkin thinks about the consequences of the crash still unfolding.  In “Can We Survive the Next Financial Crisis?,” Bloomberg’s Yalman Onaran, considers both the ways in which the system that led to the last crisis has become safer and also the pockets of risk that have grown since 2008.  (Keep your eyes on CLOs– collateralized loan obligations– this decade’s version of the CDOs that tanked the economy in 2008…)

The always-illuminating Matt Levine, considering John Cassidy’s review of Adam Tooze’s new history of the financial crisis/crises, Crashed, highlights Tooze’s central argument: that much of our current geopolitical situation — the nativism and fragmentation and general rejection of decades of stability and elite consensus — is a consequence of the 2008 financial crisis and the flawed response to it.  Levine concludes with a striking observation…

Finally here is a passage I found interesting from Tooze’s “Crashed,” on quantitative easing, political volatility, and the U.S.’s flirtation with defaulting on its debt in 2013:

That the astonishing events in Congress in 2013 did not lead to an immediate crisis in the bond market pointed to the resilience of the US Treasurys as the global safe asset of choice. Though the Chinese and Germans might complain and the market blipped, demand for US Treasurys quickly recovered. Ultimately, the market for IOUs drawn on the American taxpayer was underwritten by the Fed. Unlike the ECB, America’s central bank left no doubt that it backed its governments’s debt. QE3 bond purchases provided immediate support, keeping prices up and rates down. This provided at least one point of stability for global investors. But after the events of 2013 questions could no longer be avoided. Was one of the unintended side effects of the stability generated by the Fed to free politics from market constraints and thus enable Republican extremism? Did America’s ability to ride out short-term budget crises like those of 2011 and 2013 lead contemporaries to underestimate the future dangers that the degeneration of American democracy might bring with it? And how long would the Fed’s technocratic interventions compensate for America’s lackluster economic recovery and the shambles in the legislative branch?

Obviously one can disagree with some of the characterizations there. But one thing that we used to talk about a lot around here was that people were worried that people weren’t worried enough: Financial-market volatility seemed eerily low given the apparent instability of, you know, the world. That worry turned out to be overstated — volatility picked back up without causing any particular crisis — but it really was a bit eerie: Apparent actual volatility in the world kept not causing volatility in asset prices. But an implication of Tooze’s argument is that some of the causality went the other way: Because financial markets were calm in the face of geopolitical instability, they enabled more geopolitical instability. If you don’t have bond vigilantes checking up on you, then you can get up to a lot of weird stuff.

[image above: source]

* James Buchan

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As we try to keep cause and effect straight, we might recall that it was on this date in 1920 that the biggest incidence of domestic terrorism in U.S. history to that date occurred: the Wall Street bombing.  At noon, a horse-drawn wagon passed by lunchtime crowds on Wall Street and stopped across the street from the headquarters of the J.P. Morgan bank at 23 Wall Street, on the Financial District’s busiest corner.  Inside the wagon, 100 pounds of dynamite with 500 pounds of heavy, cast-iron sash weights exploded in a timer-set detonation, sending the weights tearing through the air.  30 people were killed immediately, and another eight died later of wounds sustained in the blast.  There were 143 seriously injured; the total number of injured was in the hundreds.

Though investigators and historians believe the bombing was carried out by Galleanists (an anarchist group responsible for a series of bombings the previous year), the attack– which was a part of postwar social unrest, labor struggles and anti-capitalist agitation in the U. S.– was never officially solved.

The aftermath of the explosion

source