Financial Crisis – Three Years and Counting

Image via Wikipedia

It has been three years since this financial crisis began.  Yet if you follow the news, all the discussion has been around the two-year anniversary of the Lehman collapse and how the world has done since then.  If we are to truly understand the nature of this economic malaise, we have to remember its roots – in the subprime crisis of 2007.  That was the year in which the credit markets froze.  From a financial viewpoint the credit markets rule the economy – not the stock market, as you might come to believe if you watch too much network television. Without banks lending to banks, to companies or to people you are not going to be able to grow an economy, much less buy that house you were interested in.

The damage that was caused by the sub-prime crisis and credit market freeze cannot be underestimated.  It dragged the US economy into the worst recession on record.  It pushed millions out of work, permanently.  It pushed two investment banks to the verge of failure – Bear Stearns and Merrill Lynch.  It pushed another into bankruptcy – Lehman Brothers.  That bankruptcy seized the global asset markets – all of them.

So then is it a surprise that three years into this crisis, and a trillion dollars of government stimulus money, that we’re still suffering the effects?  Absolutely not.  And if it is another two years until we have true stability in the global asset markets, it would not surprise me.

David B. Matias