On September 15th 2008… Remembering the Lehman collapse
Richard Fuld (ex-Lehman CEO) “The blame on the firm’s share price collapse lies on hedge funds and short sellers”
On September 15th 2008…
… Fundamentals were solid
… The balance sheet of the main central banks was 9 trillion dollars smaller than today.
… The balance sheet of US banks was 87% of US GDP. In the European Union it was 320%, but media called it an “American financial crisis”.
… People blamed aggressive stimulus for the housing bubble, rightly. Today we hail excessive stimulus for “the recovery in housing”.
…People blamed central banks for being irresponsible lowering interest rates to unjustifiable levels. Today we applaud them for printing money and lowering rates further
… Greenspan was to blame for lowering rates to 1%. Today we complain that central banks don’t reduce them below 0.5%.
… Total debt accumulated in G7 countries was 400% of GDP, today it’s 440%… Hedge Funds were to blame for the stock market crash, yet earnings estimates (Eurostoxx) had to be revised down 45%.
… European banks held 22% of outstanding sovereign debt as “no risk”…. Spanish savings banks had “better liquidity and solvency ratios than US ones”. Spain, according to PM Zapatero had “the strongest financial sector in the world”.
… The second largest exposure to derivatives in the world was in Deutsche Bank, yet media talked about “US financial crisis”.
… Europeans blamed US sub-prime lending while Spanish and Irish banks were lending at 40 years, 12% loan to value to families that barely paid the mortgage with 1.5x monthly income.
… Hiper-regulated European banks had debt to assets of “only” 25 times…. 60% of global banking system was state-owned or semi-state owned.
… European banks had an estimated 10% core capital. today it’s less than 8%.
…. Junk bonds traded at healthy premiums due to risk. Today, junk bonds trade at lowest yield in thirty years.