Anniversary of Lehman’s collapse reminds us – booms are often followed by busts

Anjan ThakorAnjan Thankor, John E. Simon Professor of Finance


Only a decade has passed since the collapse of Lehman Brothers, and it seems the mortgage crisis and subsequent Great Recession are already ancient history in the minds of many investors, bankers and regulators.

All it took was a few short years of low default rates and good loan growth to re-create the kind of heady atmosphere of irrational exuberance that transforms staid bankers into high-wire risk takers.

For those who have forgotten, such risk takers are the the ones who caused the 2008 crisis, which resulted in the collapse of investment bank Lehman Brothers on Sept. 15 and the worst recession since the 1930s.

With their hubris restored, bankers once again have convinced themselves and others that they are the “masters of the universe,” with superhero risk management skills.

At the same time, regulators are beginning to loosen their reins, in part on the belief that the booming economy, flush with the gains from tax breaks and deregulation, no longer needs such restraints.

But, as my research into past financial crises has shown, the seeds of the next bust tend to be sown during the boom times.

Read the full piece in The Conversation.

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