A little more than a decade ago, the global financial system began to crumble.
Ten years ago this week, rumors circulated that Bear Stearns had liquidity problems and questionable assets. Despite the CEO’s best efforts to calm investor nerves, investors spooked and pulled their assets. By the evening of March 13, Bear Stearns was in the midst of a liquidity crisis.
That night, executives pulled an all-nighter discussing how to address the issues. At 5 a.m. one decade ago, they woke Federal Reserve chairman Ben Bernanke and other stakeholders to discuss. The solution? They reached an emergency agreement with JPMorgan and the Federal Reserve Bank of New York in the largest-ever bailout of a U.S. securities firm.
The press release called the bailout a “merger agreement,” a much more preferred phrase than “fire sale.” This, coupled with the actual bankruptcy of Lehman Brothers shortly thereafter, was the dawn of the Great Recession.
So where are we now?
A lot is different. But a lot is still the same. My colleague Jac Gogel shared some insights on how the economy has evolved over the last 10 years. In that time, we seemed to have achieved prevention in policy, answers through retrospection, and a recovery that while taking its time, has taken markets to historic highs.
There are still existential risks — but this need not be a bad thing; markets rely on risk. Instead, our greatest threat is uncertainty.
Markets don’t exist in a vacuum, not from each other and certainly not from political, social, and cultural variables. The esoteric products that many investors can’t understand, and which led to the Great Recession, are far less of a concern today than the massive, profound amount of uncertainty within the markets. The fuel for today’s uncertainty has numerous causes, from the hype around cryptocurrencies to the “fake news” epidemic.
Uncertainty is the new threat, and we must stop its spread.
To mark this week’s anniversary, we at Vested are updating our logo to include a sleeping bear — a small nod to the big Bear that went to bed on March 14, 2008. Also be sure to check out my recently published column on Markets Media summarizes the new economic state of play. Read it here.