¿Cómo afectó el colapso de Lehman Brothers a la economía mundial?

The banking system, much like Bitcoin, is illusory and relies on the actors to endorse the structure because it is convenient to do so. In the case of banking the Lehmans default showed that an interdependency between retail and investment banks is inevitable because they all operate within the system. The primary behavioural change inside banks is to rely more heavily on collateral than subjective credit analysis. The next crisis will of course be sparked by a shortage of collateral. The most recent mini-crisis for banks was the misunderstanding of the role collateral had, particularly when long dated instruments are bought to collateralise deposits.

Lehman Brothers' 2008 bankruptcy triggered a global financial crisis, leading to financial market turmoil, credit freeze, banking system stress, and a severe global recession. The housing market was severely impacted, with subprime mortgages leading to a sharp decline in prices. Governments intervened to stabilize financial systems, implementing austerity measures, and implementing reforms to prevent future crises. The crisis also led to currency depreciation, increased unemployment, and a reevaluation of financial regulations. The collapse underscored the need for more robust regulatory frameworks and international cooperation.

Banks were lending at the long end and borrowing at the short end. Once short term rates rose as the confidence in inter Bank lending collapsed - Bear Stearns/Northern Rock. This caused a spike in borrowing costs. Many banks such as Lehmans were poorly capitalised and had inadequate protection against losses on their trading books. Lehmans had exposure to interest rate derivatives, credit derivatives and sub prime lending. Banks dell in order of their poor capitalisation and exposure to interest rates, credit risk and speculative loans to to poor credit worthy institutions and individuals. A wave of credit was created to keep tge western economy afloat as real wages were falling for the mass of consumers. Structurally nothing has changed.

The credit crunch that followed Lehmans' collapse had a particularly damaging effect on SMEs. Unlike large corporations that had diverse funding streams, SMEs were highly dependent on bank loans for their operations and expansion. The reluctance of banks to lend during the credit crunch made it extremely challenging for these smaller businesses to stay afloat. Many had to scale down their operations, let go of employees, or even shut down, exacerbating the already deteriorating economic conditions. This chain reaction had a long-lasting impact, as SMEs are often considered the backbone of many economies, providing jobs and contributing significantly to GDP.

What happened with Lehman Brothers (LB) is LB's assets and liabilities are not matched because on the assets side, LB has put billions of dollars in high-risk assets e.g., mortgage-backed securities (MBS) and ultimately, the issuers of MBS had defaulted, consequently, LB has no cash to meet its short-term debt. That is a mismatch! The mismatch between asset and liabilities in banking will cause financial crisis. The financial crisis developed because there was no money in circulation, which caused everything to get blocked and clogged.

In simple words, the mother of economy is confidence because without confidence, there will be no investors & No Investors mean No Business & No Business mean there will be a lot of Unemployment! Once the investor has confidence, there will be money circulation in the market. Once the money circulation exists, there will be shared economy for society. In 2008, as a result of losing confidence, investors moved their funds to the safer assets like cash, gold, government bonds. As a result, no money circulation in the market and unemployment arose.

The confidence crisis led to a notable shift in consumer behaviour towards debt and savings. With the collapse of Lehman Brothers, people started questioning the stability of financial institutions and the wisdom of being overly reliant on credit. This skepticism prompted a more cautious approach to borrowing and a renewed focus on saving. While reduced spending had a dampening effect on the economy, the shift also led to some positive long-term changes. Many households began to build more robust financial safety nets, and there was a greater public interest in understanding debt management, investments, and overall financial literacy.

During the crisis, while other investors were fleeing to safer assets, Warren Buffet made substantial investments in companies like Goldman Sachs and General Electric, which were considered risky at the time. These moves were backed by a solid understanding of the companies' fundamentals and a long-term view on their stability and solvency, contrasting the widespread panic. During a confidence crisis, the flight to quality can cause undervaluation of assets that still have strong fundamentals. This can create opportunities for contrarian investors. Strategic acquisitions during downturns, when executed with prudence, can lead to significant long-term value creation.

The collapse of Lehman Brothers shook investor confidence in the financial markets. Consistently, it led to a loss of trust in the stability of financial institutions, causing a widespread panic and a freeze in credit markets. Besides this lack of confidence had a ripple effect on other financial institutions and businesses worldwide.

Imagine the confidence crisis as a big wave of worry that swept through the financial world. When Lehman Brothers fell apart, it made investors and regular people really nervous. They saw their money and investments lose value, and they didn't know if other big financial companies were safe. So, they started holding onto cash and playing it safe with their money. This made it tough for businesses because people were spending less. Policymakers had a tough job trying to figure out how to fix things without making them worse. It was a challenging time, but with careful steps, confidence can come back.

Picture the trade collapse like a big slowdown in the world's shopping. During the financial crisis, people and businesses were feeling uncertain, and money was tight. This made them buy less stuff from other countries and sell less too. It affected rich and poor countries alike, causing less money coming in, more people without jobs, and slower growth. Some countries even tried to protect their own businesses by adding taxes and help, which could lead to problems. But with careful cooperation, trade can bounce back and benefit everyone.

It's crucial to highlight the interconnectedness of global trade and finance. The automotive industry's struggles were symptomatic of broader economic linkages, where financial shocks quickly transmitted through trade channels. Post-crisis, many companies reevaluated their supply chain resilience, leading to a trend towards more diversified and localized supply networks. This shift aims to mitigate the risk of future trade collapses by reducing dependency on single markets or sources. Data from global trade flows post-2008 show a restructuring in trade partnerships, with some countries diversifying their export markets and import sources to build economic resilience.

During financial crisis, there is no liquidity in the market. No liquidity means no trade or no transaction. Liquidity is crucial for both buyers and sellers in the market because the buyer and the seller are unable to deal with one another in the absence of liquidity.

Countries are dependant on each other for materials/ resources and therefore Trade provides the means to achieve this. Any trade collapse in one part of the world would affect the other part of the world in that the resources which are procured from one country will Not be available to the other country.

It is important to recognize the strategic rationale behind these policy responses. The bailouts and guarantees were not just about saving individual banks but about preserving the integrity of the financial system. Quantitative easing was a novel approach at the time and was aimed at addressing the liquidity trap where traditional monetary policy tools were ineffective. Fiscal stimulus aimed to offset the collapse in private demand with public spending. These actions underscore the importance of policy flexibility and innovation in the face of unprecedented economic challenges. Subsequent data showed that the U.S. economy recovered faster and stronger compared to the Eurozone, which was slower to implement such expansive measures.

When financial crisis happens, central bank must step in to ease the turbulence in the market. To restore confidence, central bank can provide bailouts, guarantee for depositor. If central bank is not willing to provide bailouts or guarantee, there will be a bank run. Once the bank run happens, the turbulence is getting worse. Bank run will destroy the investors' confidence. Aside from bailouts and guarantee, Quantitative Easing is also a good tool to provide liquidity in the market where the central bank serves as a buyer. During financial crisis, "it's hard to find the buyer in the market". That's why central bank must become a buyer in the market.

In the weeks following the bankruptcy filings, the US Treasury and Fed tried to get congressional approval for the Troubled Asset Relief Plan in Congress, which would provide them with necessary funds to facilitate a bailout for the companies. The Federal Reserve ended up acquiring most of AIG’s assets for $170 billion, and provided bailout plans for several other banks in the following weeks. However, as more information came to light regarding Lehman’s dubious accounting practices, the Fed decided not to provide them with a bailout plan and let the investment bank fail on the grounds of “moral hazard” and for their collapse to serve as an example for similar Wall Street banks. A decision that has often been criticised.

To stabilize the financial system, governments and central banks around the world took unprecedented steps. This included massive bailouts of financial institutions, lowering of interest rates, and quantitative easing measures. These interventions had long-term implications for government debt and monetary policy.

O uso da política como ferramenta advém das relações da sociedade. Por meio da política, os problemas sociais sao apresentadas e as soluções são discutidas e implementadas. Na crise de 2008, houve excesso e abertura exarcebada dos mercados de créditos, sem nenhuma, debates, regulamentação ou fiscalização efetiva para o mercado de crédito de hipoteca nos EUA. Com isso, diversos players do mercado estavam alavancados nesse mercado, e houve a ruptura da cadeia econômica doméstica e mundial. Exemplos como o Leman Brothers, mostra a importante lição que foi levada a sociedade, na qual existe problemas que vão além da economia ou da ciência, melhor dizendo, somente a solução política apresentará e solucionará os problemas econômicos.

Basically, the financial crisis happens when there is a mismatch between assets and liabilities. The imbalance in maturity between assets and liabilities plays a crucial role in triggering the financial crisis. Once the mismatch happens, there is no liquidity in the market.

Another important angle to consider is the influence Lehman Brothers' collapse had on the global political landscape. The financial crisis it precipitated not only eroded trust in financial institutions but also in political systems that were seen as enablers of reckless financial behaviour. This crisis of confidence contributed to the rise of populist movements and leaders who tapped into public discontent, promising to disrupt the status quo and hold 'elites' accountable. In some cases, this led to significant policy shifts, from tighter financial regulation to a reconsideration of globalisation and trade agreements. The political ripple effects of the collapse are thus an essential aspect of its longterm impact on the global economy.

First of all, it's worth noting that the main problem wasn't Lehman Brothers but rather the subprime mortgages. The bank merely triggered the crisis. Secondly, and perhaps most importantly, the aftermath of this crisis is still ahead of us. The 2008 crisis led to extremely low interest rates, and in many countries, government bond yields even turned negative, allowing governments to increase borrowing while reducing the cost of servicing debt. Right now, the cost of borrowing is rapidly rising, and servicing government debt will become a very serious problem for many developed countries in the next few years. This could lead to a crisis on a scale far greater than 2008.

The issuance of commercial paper money decreased from $64 billion in September 2008 to $16.6 billion in December 2009, as the government resorted to unconventional monetary policy measures such as liquidity provision and asset purchases. Scholars argue that a fiscal policy response would have been more effective to restore jobs and increase labor productivity. However, in the EU, the monetary union was not supported by a fiscal one and each nation held individual fiscal responsibility. Several European governments failed to significantly tighten their fiscal policy and banks such as the Central Bank of Iceland, Banco de Portugal were left exposed. This ripple effect of the Lehman Brothers collapse led to the European Sovereign Debt Crisis.

The crisis led to a shift in economic power, with emerging economies like China and India gaining more prominence as they were less affected than the developed economies.