It's been 14 years since the crack of Lehman Brothers, the spark that ignited the last global financial crisis. On 15 September 2008, when the investment bank unexpectedly declared its bankruptcy, few had any idea of what the consequences would be. The clouds of derivative finance were so rarefied that the proportions of the disaster only became clear when the domino effect had already taken place, causing the world recession which within a few years, in turn, would lead to European sovereign debt crisis.
The subprime mortgage crisis
But let's start from the beginning. At the origin of the American financial cyclone was the subprime mortgage crisis. In essence, US banks made their customers think they could use houses as money machines. The strategy envisaged the taking out of mortgages in series: the new loans served to pay off the previous ones, but, being of a higher amount (because real estate prices had risen in the meantime), they allowed families to pocket the difference. The game worked for a few years, but eventually, when house prices stopped rising, it got stuck. At that point, millions of Americans found themselves with unsustainable debts and their homes ended up in the hands of the banks, creating something similar to ghost towns in some areas of the country.
The cloud of derivative securities
So far we have talked about the real economy, but the real trigger of the crisis was elsewhere, in more abstract and speculative finance. While they made ordinary people subscribe to subprime loans, in fact, the banks issued derivative securities guaranteed by those mortgages. They knew that those financial products were worthless, because it was clear that sooner or later the subprime merry-go-round would stop spinning, but they still sell them as profitable and safe investments. The operation was possible thanks to the collaboration of the rating agencies, which (paid by the banks themselves, and therefore in conflict of interest) assigned the famous triple A to those securities, the maximum marks in terms of reliability.
At first, the banks only traded subprime-linked derivatives externally, but then they started trading them with each other. With their vision clouded by trading-related gains, they pretended not to see that the asset bubble was about to burst. After all, by now no one had an overview: subprime mortgages represented a small part of the American financial market, but the cloud of derivatives produced above them had become so large, complex and ramified as to send a giant like Lehman into crisis , opening the doors to the Great Crisis.
The bankruptcy of Lehman Brothers
The landslide just started on 15 September 2008, with the most ruinous bankruptcy ever. Before being suspended that day, Lehman Brothers shares plunged 80% in the pre-open on Wall Street, while the Dow Jones index closed 500 points lower, the worst result since the post-11/2001 session XNUMX. Ben 26.000 employees of the Bank (of which 6.000 in Europe and 140 in Italy, between Rome and Milan) have said goodbye to their jobs.
Richard Fuld, chairman and director of Lehman, was under investigation by some members of Congress, but not by the judiciary, and has since continued to work, holding high-paying positions. In general, all those responsible for the bankruptcy have been acquitted or even tried. And the rest of the planet took care of paying the bill.
