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Martin Gilbert: «The scale of the crisis should humiliate us»

The bankruptcy of the American investment bank Lehman Brothers symbolized the global financial crisis ten years ago. Investors could obtain important insights from the various phases of the crisis, writes Martin Gilbert finews.first,

This article appears in the category finews.first. In it, authors comment weekly on economic and financial topics. The texts appear in German and English. The selection of texts is finews.ch.

The first phase actually began more than a year before the fall of Lehman Brothers: the bubble burst in the American real estate market; the investors were gripped by fear. Interest rates have increased on the credit markets. This was followed by the collapse of Lehman Brothers, the first large bank that went bankrupt in September 2008. The problems in the banking sector were no longer sustainable, panic broke out and the entire financial system was about to collapse. Pessimism, even depression, was the buzzword of investors.

The recovery phase began when politicians were desperately looking for solutions to the drama that spread from the financial markets to the economy. In March 2009, the US stock market reached the bottom. A month later, investors began to regain confidence in the wake of the G20 renovation program.

«Since March 2009, the US stock market index has tripled»

Many elements in the recovery phase and subsequent years were positive, including the response from regulators. Nowadays, banks are generally much better capitalized than back then. The business model, which was based on short-term financing and incomprehensible products and ultimately went bankrupt, has largely disappeared. There are also signs that culture in banks has also changed.

Risky matters are rejected. Today the motto is caution. Banks now see themselves more as responsible lenders who support the economy. The regulations, which have been tightened up by regulators around the world, make it easier for banks to cope with difficult situations such as the ten-year crisis.

Skepticism causes the bull markets to flourish, optimism makes them mature. The recovery of the world economy was slowed by the debt crisis in the EU, which in turn had long-term consequences for countries such as Greece and Italy. Nonetheless, the measures taken in the difficult post-crisis years led to economic growth, falling unemployment and higher corporate earnings worldwide. Since March 2009, the American stock market index has increased threefold and the FTSE 100 has more than doubled.

"The rescue was finally bought with taxpayers' money"

Some aspects of what happened ten years ago, however, still cast long shadows. Above all, the crisis undermined the confidence on which Western market economies rested. We have seen a time when, according to some observers, bankruptcy was even rewarded. Rescue was eventually bought with taxpayers' money, cutbacks, declining wage growth and the imbalances created by quantitative easing. Capitalist systems are based on the assumption that finances work in the interest of everyone. The financial crisis has saddled this relationship to the limit of resilience. One had the impression that capitalism could no longer promise a positive future.

The different phases of the crisis remind me of three important lessons: the first phase of the crisis has clearly shown that reflexes with the most reflexes are the worst of all reflexes. In the beginning, every day brought worse news, more panic and further falling share prices. It was incredibly difficult to fight and buy the herd instinct when everyone else was for sale. Anyone who did, could reward generous customers who had entrusted their assets to him.

«66 days later the bank was nationalized»

The second lesson teaches us that it is difficult to regain lost trust once. Restoring the confidence that financial institutions have lost in the crisis is a very difficult task that can take years or even decades to complete. One might think that asset managers are of little importance in this extensive system debate. But as trustees we are responsible for the financial future of our customers and we have an important role to play.

Thirdly, the crisis shows how important it is to make the right logical connections. When Britain's Royal Bank of Scotland (RBS) announced its half-year results in August 2008 – including a $ 5.9 billion write-off due to exposure to the battered American mortgage market – the institute's share price rose as market participants thought the worst was over now – 66 days later the bank was nationalized.

"In fact, many shortcomings were known»

That so many investors did not recognize the signals that indicated that the scale of the crisis should humiliate us. It reminds us how important it is to always check and question assumptions. No investment process can provide all risks at all times, but customers must be able to rely on the investment processes being as robust as possible.

The crisis has also exposed problems at the level of corporate governance. Some investors wonder why such grievances were overlooked. In reality, many shortcomings were known, but the necessary changes were not implemented and the warning signals were ignored.

The reputation of asset managers as trustees of other people's money depends on us clearly and unambiguously refutes companies that act in the interest of our customers. After all, it is our job to help investors build their financial future. The obligation to do the right thing for our customers must always be central to our actions. If we want to help restore confidence, we need to concentrate on that.

Martin Gilbert is the CEO of Standard Life Aberdeen, a company founded in 2017 from the merger between Standard Life and Aberdeen Asset Management. Gilbert was co-founder of Aberdeen Asset Management in 1983.

Previous texts from Rudi Bogni, Oliver Berger, Rolf Banz, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Dieter Ruloff, Marco Bargel, Steve Hanke, Urs Schoettli, Maurice Pedergnana, Stefan Kreuzkamp, ​​Oliver Bussmann, Michael Benz, Albert Steck, Andreas Britt, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-Bisang , Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Hans-Martin Kraus, Gérard Guerdat, Didier Saint-Georges, Mario Bassi, Stephen Thariyan, Dan Capricorn, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jacob Roth, Marco Martinelli, Beat Wittmann, Thomas Sutter, Tom King, Werner Peyer, Thomas Copper, Peter Kurer, Arturo Bris, Frédéric Papp, James Syme, Peter Hody, Dennis Larsen, Bernd Kramer, Ralph Ebert, Marionna Wegenstein, Armin Jans, Nicolas Roth. Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Michael A. Welti, Peter Fanconi, Alex Wolf, Dan Capricorn, Patrick Scheurle, Claude Baumann, Sandro Occhilupo, Claudia Kraaz, Will Ballard, Michael Bornhäusser, Nicholas Yeo, Claude- Alain Margelisch, Jean-Francois Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Ana Botín and Michel Longhini.


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