- David Andrews is director of David Andrews Media, a financial public relations consultancy with high profile fund management and financial services clients based in the UK, Ireland, Cayman Islands, Cape Verde, Beijing, Europe and the U.S. The opinions expressed are his own. -
David is a former financial journalist best known for his weekly Daily Express and Conde Nast ‘Money Matters’ columns.
Few will be lifting a glass to toast the first anniversary of the collapse of investment bank Lehman Brothers a year ago this week. With billions of dollars under management and thought to be invincible, the private bank was generally regarded as a potential gateway to the riches of Croessus for the ordained Masters of the Universe who prowled its Jackson Pollock-lined corridors.
But when the bank started to drown in the treacherous quagmire of its collateralized debt obligations (CDOs) - a type of structured asset-backed security whose value and payments are derived from a portfolio of fixed-income underlying assets – America’s Federal Reserve elected not to send in the cavalry.
The virtual overnight collapse of Lehman Brothers in September 2008 was the catalyst which brought the world economy to its knees with breathtaking rapidity. The bank was so huge, a massive juggernaut reversing and elbowing its way in so many different markets that when the U.S. government allowed it to go to the wall, it caused a convulsion among its many counter-parties, which in turn caused global credit markets to seize up. "Normal" banking activity virtually ground to a halt.
We were all in dreadful trouble.
Some commentators, notably Warren Buffett and the International Monetary Fund’s former chief economist Raghuram Rajan, sounded many alarms bells about the runaway train that was the growing appetite for CDOs and other highly complex, derivatives-based tools which delivered fabulous wealth to a few but subliminally spread a cancerous, critical risk throughout the global credit system and effectively precipitated the crunch that led to a near collapse in the UK and U.S. banking systems and onto worldwide recession.