Global Financial Crisis
Craig Turner, 19 January 2025
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In The Australian, Bernard Salt writes, "The collapse of New York's Lehman
Brothers in September 2008 led to the Global Financial Crisis and triggered a
surge in public spending." This is not correct.

The GFC started in the first half of 2007. I was on a one-year contract at a
bank in London and recall sharing a lift with two traders day who were
discussing troubles for the bank's US real-estate positions that had been
revealed in the press a few hours earlier. It was well-understood that rating
agencies and US government-backed entities had been mispricing risk related to
subprime mortgates.

The next year I was working at a fintech. The CEO was playfully berating my
team for being slow to roll out a product where each install was sponsored by
Lehmans. We batted back that Lehmans were behind on their payments to us (the
finance controller sat nearby, and we could hear her calls to them). We said
they would be broke within a week. And they were.

Bear Sterns and Northern Rock happened substantially before Lehmans. In a less
paranoid climate, Lehmans may have pulled through.

The collapse of Lehmans happened late in the crisis. The US gvt was more
relaxed about it that they might have been because it countered strong
perceptions of moral hazard. Its significance should not be over-stated. The
equities markets dropped, but contagion seems limited. Famously, London
Clearing House generated a profit while winding down their regional equities
positions. Within a year, my firm had a new relationship with Nomura, who had
purchased Lehmans in Europe. It would be difficult to distinguish contagion
caused by the collapse of Lehmans itself vs the broader unfolding crisis.

In a 2022 article /The inflection point: can you feel it, too?/ Salt wrote,
"The collapse of Wall Street's Lehman Brothers in September 2008 was watched
closely from Australia. It was like witnessing a nuclear explosion from afar;
we braced for a shockwave that was surely hurtling across the Pacific. But it
didn't arrive." [1]

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[1] https://www.theaustralian.com.au/weekend-australian-magazine/the-inflection-point-can-you-feel-it-too/news-story/2088e23ffb87850e3596b2962b4fffed