Is Lehman nightmare haunting us?
Are we in crisis again?
The problem with this question is that nobody knows the answer. Stock markets appear to be crumbling.
The KOSPI dipped below 1,700 during Tuesday’s trading session, such a vertical dive that even the most seasoned investors may have swooned. The intra-trade low signified a loss of 10 percent of the market capitalization.
Institutional investors moved in to reduce hemorrhaging but foreign investors are certainly heading for exits, if not planning an exodus.
Interestingly, it was Chinese investors who also moved in and took up losses created by U.S. and European investors’ flight of capital.
Doomsayers are back in the headlines, spitting venom about the crisis looming on the horizon. Nouriel Roubini, professor of economics at New York University, the man who could pass as Count Dracula given the right cape and set of fake fangs, says that the U.S. economy is in for a double dip recession that would make for a worse situation this time around than the previous crisis in 2008.
Three years ago, it was a subprime crisis, started on Wall Street, that sent financial markets across the world on a tailspin.
Financial players sold dreams to anybody who wanted a new home irrespective of whether they could afford one. In order to cut a larger piece of the pie, they engaged in derivatives that bogged down banks, insurance firms and other financial companies and spilt over to Main Street, drowning GM, Ford and Chrysler.
Later, in an eerie re-enactment, it was the Greeks, Irish, Portuguese, Spaniards and Italians living beyond their means, their countries pushed to the brink of bankruptcy. Europeans, bound by their union, prove to be divisive, not being able to find a solution on their own.
This has led to a slow-motion collapse of the eurozone economy, which accounts for one of two reasons for the current hardship. The other is the lack of U.S. leadership that ended with an unprecedented downgrade in their credit rating. The world’s only superpower has fast become a super-patient.
The equivalent of the nightmare-scenario-come-true three years ago was the fall of Lehman Brothers, one of the top investment banks that provided what then seemed an invincible pillar of U.S. Inc.
Another big similarity between now and three years ago is the lack of leadership.U.S. and Europe, the traditional leaders, are sick, while emerging markets are still immature.
It is tempting to link the 2008 crisis with the current one to draw parallels with the Great Depression.
A funny thing is that human nature is so predictable sometimes, especially when the chips are down. This leads to the question of the day: “Would we behave as we did three years ago and three quarters of a century ago?” Have we learned anything from our past behavior?
In this sense, the challenge we are facing today is not just about economics but more fundamentally about human behavior. More precisely, whether we can change and adapt.
Maybe that is simply a daydream, considering changes that take place from one moment to another in global markets, amid concerns that remain buried in our minds about whether we will receive our next paycheck.