The Pride - Issue 4 - Winter 2021 - Magazine - Page 20
MAC R O A N A LY S I S
16 September 2008: The US’
biggest insurer AIG is bailed
out by the government,
saving it from collapse.
25 September 2008: Mortgage
giant Washington Mutual is
taken over by regulators and
sold to JP Morgan.
17 September 2008: HBOS
is rescued by Lloyds.
30 October 2008: The
Fed cuts rates to 1%.
6 November 2008: The
UK cuts rates to 3%.
28 September 2008: Fortis
– now Ageas Insurance – is
partially nationalised, as the
crisis spreads to Europe.
13 October 2008: RBS, Lloyds and
HBOS breath a sigh of relief as the
UK government announces it will
invest billions to rescue them.
14 October 2008: The US
agrees to buy stakes in a
range of banks to return
stability and help preserve
free markets.
1 December 2008: The US
is officially in recession.
14 November 2008: The
Eurozone is officially in recession.
29 September 2008: Bradford
& Bingley is nationalised, its
savings arm sold to Santander.
While in the US, a $700bn
rescue plan is rejected.
30 September 2008: European bank
Dexia is bailed out by the governments of
Belgium, France and Luxembourg. Ireland’s
government pledges to underwrite the entire
Irish banking system, as it becomes the first
European country to slide into recession.
3 October 2008: The US passes
a $700bn plan to rescue the
country’s financial sector.
8 October 2008: A £50bn UK bank
bailout package is announced.
19 December 2008: Funds meant to bail
out the US banking system are reallocated
to rescue the motor industry, as the crisis
spreads and General Motors, Ford and
Chrysler face collapse.
16 December 2008: The Fed
cuts rates to a record low.
31 December 2008: The FTSE 100
records its biggest annual fall since
records began.
WHAT WE HAVE LEARNT
Stuart Steven, Sustainable Investment
Fixed Income team
We’ve learnt that when central bankers
say they will “do what it takes”, as
European Central Bank president Mario
Draghi did when he promised to save
the euro, they mean it. Moreover, they
are grudgingly prepared to turn a blind
eye to the unintended consequences of
their actions, and would no doubt do
it all again! In spite of the fallout, we
believe their actions were justified and
likely prevented the multi-year global
recession that would have resulted.
20 - THE P R I DE - Issue 2 Winter 2018
Jamie Clark, Macro-Thematic team
Shashank Savla, Asia team
The primary lesson should be one of
humility under conditions of uncertainty.
As is human nature, bankers were
overconfident,
mistaking
abstract
financial models for concrete truths.
Goldman CFO David Vinier epitomised
this, gullibly describing the financial
crisis as a series of “25-standard
deviation moves, several days in a row”.
David, your models were just wrong.
The Global Financial Crisis – or,
more precisely, the extraordinary
Quantitative Easing measures which
central banks put in place in response to
the crisis – marked the biggest change
to the investment climate that I have seen
in my career. We’d not seen these tools
used before, and it put us in a new era.
We’re still seeing the impact of these
on markets, as central banks gradually
withdraw some of the measures.
Personally, over the past six to seven
years I’ve seen an increasing interest
in equity income funds as interest rates
have plummeted, and also in companies
returning cash to shareholders through
dividends and buybacks.
Combined with leverage, overconfidence
is a big problem. Banks are levered
by nature and, in 2007, this looked
extreme. Banks now look more humble.
Regulatory pressure has seen balance
sheets shrink and capital buffers grow;
high quality assets assuaging liquidity
concerns. Modest valuations don’t reflect
this, let alone the earnings uplift to come
from higher rates.