10 Years After the Global Financial Crisis

10 Years After the Global Financial Crisis - 10 Lessons to Learn

With the 10th anniversary of the collapse of Lehman Brothers upon us, it is instructive to look back over the period and ask ourselves what, if anything, we have learned from living through these exceptional events. As is often the case, actual new lessons to be learned may be few, but there are some valuable older lessons to be relearned.
 

Lessons to learn

  The Crisis  

Lesson 1: Credit cycles are inevitable
Lesson 2: The financial system is based on confidence, not numbers
Lesson 3: Managing and controlling risk is a nearly impossible task
 

  The Reaction  

Lesson 4: Don't panic!
Lesson 5: Some banks are too big to be allowed to fail
 

  The Aftermath  

Lesson 6: Emergency and extraordinary policies work!
Lesson 7: If massive amounts of liquidity are being pumped into the financial system, asset price will surely rise
Lesson 8: If short-term rates are kept at extraordinarily low levels for a long period of time, yields on other assets will eventually fail in sympathy 
Lesson 9: Extraordinary and untried policies have unexpected outcomes
Lesson 10: The behavior of securities markets does not conform to expectations
 

  Thoughts From a Peek Into the Future  

Thought 1: The next crisis will undoubtedly be different from the last - they always are
Thought 2: Don't depend on regulator preventing future crises
Thought 3: The outlook for monetary policy is unknown
 

  So what now?  

Action 1: Don't abandon diversification
Action 2: Be dynamic!
Action 3: Don't abandon active management