On this day in history, Lehman Brothers filed for bankruptcy and kindled the 2008 financial panic.
Though many still debate the panic's causes, the endless counterfactuals are ever more academic and rooted firmly in the past.
The bull's drivers to this point should continue and gain a little additional momentum from waning political risks.
On this day in history, Lehman Brothers filed for bankruptcy and kindled the 2008 financial panic. The days after Lehman died were no walk in the park. The risks usually associated with financial disaster—frozen credit, monetary contraction, deflation, and economic depression—were all on the table for a brief moment. Since Lehman's collapse, we've done our best to note all that could have happened but didn't and all that might not have happened but did.
To this day, folks debate the panic's causes, but the endless counterfactuals are increasingly academic and rooted firmly in the past. Two years on, the future, though never without risks, looks more favorable than ever dreamed in those gloomy days. The bull market got feet and ran on monetary stimulus, fiscal stimulus, waning panic, healing credit markets, Emerging Markets growth, renewed business spending, a steady consumer, and more. These drivers continue.
Now the bear's last tooth is getting long and loose. Every nasty downturn has an associated political backlash. But perhaps none are quite as ferocious as those fueled by financial panic. High rhetoric bandies blame and threatens wholesale change. Politicians usually hit their stride when stocks and the economy are on the up and up, and while they don't derail the recovery, they can restrain momentum. Why put money on the line, when the rules are in flux?
At this point, most major new laws are in the books—much watered down—and the folks in power are working on depleted political capital and facing legislative gridlock. Legislative uncertainty (caused by the threat of new laws) is thus on the wane. Regulatory uncertainty (thanks to morphing execution of new and existing laws) is likewise lessening. The Basel III international bank rules are now known and soon to be in the books. Even punishing banks is losing its luster. Europe's proposed financial transaction tax, for example, appears to be fading fast.
Banks and businesses have been profitable but cautious amid the shifting legal landscape. As Washington curls up for a long winter nap, calculated risk-taking should supplant suspicion and speculation. Interest rates for the credit-worthy are rock-bottom even as steep yield curves promise lending profitability. Reinvigorated lending and renewed business spending (already an important driver) may prove formidable economic forces in the months ahead.
As this year's string of investor worries wanes, today is a good day to shake off the gloom and remember that, though Lehman died, it didn't kill the economy.