This past week was the ten year anniversary of the now-notorious Lehman Brothers’ (collapse) moment that nearly destroyed the world economy. The event has caused a lot of proverbial soul searching as you might expect. It begs the question: how safe are the global economies and markets now a decade later?
The short answer is that while everyone continues to brag about how amazing the never-ending bull market has been in smashing one record after another (until it became the longest one of all time), a growing consensus is emerging that markets are simply too quiet. Times when the financial markets are eerily quiet are nearly always a potential precursor for a crash resulting in or from a crisis.
Consider what the Director of Intelligence and CEO Danielle DiMartino Booth of Quill Intelligence (and adviser to long-time Federal Reserve President Richard Fisher of the Dallas Fed) recently warned:
“There was abundant liquidity in the system in 2006, too.”
She should know, since she sat in the front row for the unfolding crisis. What this comment is neglecting to mention though is how the world is drowning in debt that simply did not exist ten years ago. The fact that the U.S. federal government has increased its debt from less than $10 trillion to more than $21 trillion in a few short years is disturbing. This chart shows the alarming increase in U.S. and global debt levels over the past decade plus:
Another thing to keep in mind today is that while the situation with corporate America still shows the proverbial calm before the storm, such appearances can be all too deceiving. When Bear Stearns was only months away from its spectacular collapse, the venerable publication Forbes was ranking it one of the best managed businesses.
Remember too that Lehman Brothers which crushed global markets and economies with its spectacular collapse possessed $275 billion in AUM (assets under management). It posted over $3.1 billion worth of revenues during the full year of 2007. This was the last year before it imploded, wrecking the investments and savings of tens of millions of people around the globe in its wake.
As DiMartino Booth has pointed out soberly, these “exotic” financial weapons of mass destruction were not done away with after the last Global Financial Crisis. After destroying Bear Stearns and Lehman Brothers, plus countless other financial institutions around the world (such as Britain’s RBS, Benelux’s Fortis, and Portuguese Banking dynasty Espirito Santo), these hidden agents of financial death are still hiding in plain sight in the banking system.
The derivatives that allowed for greedy bankers to bundle up bonds into packages they can sell off to unsuspecting buyers ironically blew up their fellow colleagues and financial institutions as much as it did any of their misled customers. Legendary investor guru Warren Buffet coined the now-common phrase for derivatives when he declared them to be the “financial weapons of mass destruction.”
The idea behind them was that they would decrease risk in the system by spreading around the exposure of any single security going bust. Reality proved to be far darker and more disturbing. The greedy Wall Street bankers packaged mortgages linked to buyers who were woefully under-qualified.
When the economy stumbled and the mortgage market turned upside down, these borrowers simply defaulted and walked away from their homes and mortgages. Because it was all so non-transparent, countless financial institutions had no idea how much exposure they actually had when the whole house of cards burned down. The confidence in crisis that resulted destroyed many venerable and among the largest of the financial institutions in the entire world.
The reason this all matters is that many of these same creative financially engineered products are back with a vengeance. The infamous CDO’s collateralized debt obligations as well as the collateralized leveraged loans have grown dramatically in the last months. Dealogic shows that the CLO volume has skyrocketed by 51 percent on a year versus year basis for the first half.
Meanwhile Thomson Reuters revealed that leveraged buyout loans’ volume has grown by 33 percent. Moody’s Investors Services warns that the protection for bond investors (covenants) has reached near-record lows. This is especially the case with the dangerous junk bonds that are high yielding. And through it all, the debt time bomb continues to get bigger and tick away the last remaining minutes on the clock.
Is Your Retirement Portfolio Prepared for The Next Lehman Brothers Moment?
The next crisis may have already begun. A chain reaction of many international meltdowns has already started. Turkey, India, the Philippines, Argentina, Venezuela, and even Brazil are all examples of the next Lehman Brothers Moment just waiting to happen. These may be foreign countries across the seas, but as currency trading causes wild volatility in financial markets, worries are growing that it will be an overseas-sparked crisis that the U.S. imports when the economic house of cards collapses at last.
Remember that few individuals ever believe in a crisis even being a likelihood until it is upon them. This is why you need gold to watch your back. It has effectively protected savers and investors from financial ruin throughout geopolitical chaos and craziness for thousands of years. Click here today to get your no-risk, free gold IRA rollover kit from the world leading gold retirement company that justifies its solid gold reputation every day — Regal Assets. It will ensure you obtain all of the information you require to protect your IRA account with a partial diversification of your retirement holdings into tangible gold.