Ten years after the crisis: did the world change? - October 07, 2018

Ten years after the crisis: did the world change?

One of the biggest financial crises of the world started ten years ago. Since then the economy got back on its feet but this had a price. How have politics, monetary policies, financial regulations and markets changed since then? We have the answers!

Ten years ago, the collapse of Lehman Brothers started one of the biggest financial crises of the world. There were serious problems in the financial sector before the fall of the legendary investment bank, but that was the last straw which, when broke, started a global crisis. Ten years later the economy may be strong again, but some things have changed.

Economy is back on track

When the crisis came, economies slowed down almost everywhere around the world. After 2008, several banks, companies and countries faced hard times. Several countries’ GDP fell for some years, but looking at the GDP of the five strongest countries now, we can see that they either retained or raised their production.

GDPs during and after the financial crisis of 2008

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But to be frank, not all countries were this lucky. Financial Times created an infographic about the topic last year and they discovered that the countries which had problems before the crisis recovered slower, if at all. Southern European countries (like Greece, Italy and Spain) still have severe problems. Russia and several South American countries also struggle ever since the crisis.

Politics aren’t the same anymore

Getting back economy on its feet also had a price. During the crisis, governments bailed out many of the most important banks to dodge a full-blown financial collapse. But this led to a tension with citizens. The financial institutes needed help because they sold subpar loans.

Many believed that with this they themselves caused the crisis. The crisis which was paid from tax money, therefore people paid for the wrongdoing of banks. This tension between the richest and the rest still exists and sets the agenda for mainstream politics.

Monetary policies also changed

Monetary policies also changed because of the crisis. Central banks tried to rev up the economy and put production back on track. To do this, they started quantitative easing (QE) programs. This means that they started to buy government bonds and other assets to stimulate the economy and driving down the bond yields and the general interest rates level.

S&P500 and DAX after the financial crisis of 2008

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Many central banks (mostly in North America and Europe) also lowered their interest rates. Since the rates of central banks are affecting rates in general, this helped companies to get loans cheaper. Central banks hoped to help economy and production through cheaper loans. In some respects, this really helped: economy did start to grow soon after the crisis and stock markets recovered too.

Finances changed forever

Low interest rates had their price, though. Returns of classic bank accounts also fell, which meant that money kept in banks didn’t bring in any returns (or in extreme cases money lost its value). Because of this many people started to look for other ways of investing. But many of them had no real knowledge of the economy and chose risky “investments” like Ponzi schemes or other investments with fake promises. The stock market crash that we’ve seen in China is also closely connected to this.

Against all this, finances became safer, if done right. Most countries strengthened their regulations of financial entities. The European Union for example is trying to create the safest and most transparent system ever seen. Many other checks and balances were built into the financial system to avoid a 2008-like crisis.

Lately we also see central banks hiking their rates, which, on the one hand, could end the era of cheap money. On the other hand, it could create a healthier economy.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.