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Lehman’s Collapse Set Off the Financial Crisis 15 Years Ago Today

by Paul Morgan

On this day, 15 years ago, the financial world experienced a seismic event that would forever change the course of history. The collapse of Lehman Brothers on September 15, 2008, ignited a full-blown financial crisis that sent shockwaves through global markets and economies. The Wall Street Journal’s front pages from that fateful week in September captured the fear and panic that engulfed the financial industry.

Prior to Lehman’s collapse, the world was already grappling with the subprime mortgage crisis, which had exposed the vulnerabilities of the financial system. Lehman Brothers, once a renowned investment bank, had been heavily involved in the risky mortgage-backed securities market. As the housing market began to crumble, Lehman’s exposure to these toxic assets became too much to bear.

When Lehman Brothers filed for bankruptcy, it sent shockwaves through the financial system. The interconnectedness of global markets meant that no institution, big or small, was immune to the fallout. The fear of contagion flooded the markets, leading to a freezing of credit and liquidity. Banks became wary of lending to one another, causing interbank lending rates to skyrocket.

The impact of Lehman’s collapse was far-reaching. Stock markets around the world plummeted, wiping out trillions of dollars in market value. Investor confidence evaporated, leading to a sharp decline in consumer spending and business investment. As the crisis unfolded, numerous other financial institutions teetered on the brink, requiring government intervention to prevent their collapse.

The aftermath of Lehman’s collapse was characterized by a series of wide-ranging repercussions. Governments around the world scrambled to prop up their financial systems, injecting massive amounts of capital into banks and implementing unprecedented monetary stimulus measures. These measures, while necessary to stabilize the markets, led to ballooning public debt and a prolonged period of economic stagnation.

Lessons were learned from the Lehman Brothers collapse, and regulatory reforms were implemented to strengthen the financial system. The Dodd-Frank Act in the United States aimed to prevent future crises by imposing stricter capital requirements and oversight on financial institutions. International bodies, such as the Financial Stability Board, worked to enhance global financial regulation and supervision.

However, 15 years later, the memories of the financial crisis still linger. The scars are evident in the slow recovery of employment and wages, as well as the growing wealth inequality. The financial crisis also highlighted the dangers of excessive risk-taking and the need for a more responsible and transparent financial sector.

As we reflect on the collapse of Lehman Brothers and the ensuing financial crisis, it serves as a stark reminder of the fragility of our financial systems and the need for continued vigilance. While we have made strides in strengthening regulations, it is crucial to remain vigilant and proactive in identifying and addressing potential risks in the future. Only through constant evaluation and improvement can we hope to prevent another catastrophic event like the collapse of Lehman Brothers and the subsequent financial crisis.

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