We were in New York February 2012. It was apparently a warm winter, but still quite cold for us Sydneysiders. We quickly bought earmuffs and windproof jeans to help. I’ve finally taken this long to cull, manage and process about 80-90% of the album. On this particular day, we went to Wall Street.
The Wall Street bull was easy to find. Menacing and gloriously defiant. Tourists were lining up for photo-ops. It must get busy when the tourist coaches find this spot during the summer vacation. And some other tourists decided the back of the bull was an even better opportunity for all sorts of different poses.
This part of town was quite cold and buffeted with snappy wind. Probably coming from the water surrounding this end of the peninsular. Wall Street itself was a short walk from the bull. Wall Street has certainly played many roles in various financial crisis.
The 1907 Panic
In 1907, a bank overextended itself and basically went bankrupt. In the midst of this, many other banks were running out of cash as depositors were demanding their funds back. All the banks stopped lending to one another because of mistrust. Finally, J P Morgan, 70 at the time, stepped in and called on a bunch of bankers to a meeting to sort things out. The building in which this meeting took place is opposite to the stock exchange. J P Morgan convinced all the bankers in the meeting to pool in resources and pumped liquidity back into the system – basically enabling money to recirculate at an orderly pace to restore confidence. Out of this episode, the Federal Reserve was created.
The Federal Reserve building is only about 3 streets away from the stock exchange. It is less imposing than I expected. Almost anonymous.
We continued West.
We walked around and saw a lot of invisible police presence.
Long Term Credit Management was a hedge fund run by financial rocket scientists and overseen by PHDs professors, including Nobel Price winners. They overextended themselves and basically imploded. This had a ripple effect on Wall Street and created another panic. Once again, many top bankers were called upon to chip in funds to resolve the crisis. One bank baulked with the contribution. That bank was Lehman Brothers. They were finally convinced to chip in $100 million. The top banks, including Goldman Sachs contributed $300 Million each to resolve the crisis. The owners of LTCM lost their initial capital of some $1.9 billion Dollars.
Our random walk from the stock exchange led us to a roadside garden of poorly planted cabbages of sorts.
That was certainly odd and then we realised we had stumbled onto Zuccotti Park, the place where Occupy Wall Street took place. The park is in fact a private place at the front of a rich and private residential block.
Some of the apartment owners wanted to evict the occupiers. The best they could do for a long while was to put a brand new and shiny notice.
The Great Financial Crisis
The Great Financial Crisis of 2007/08 started with the fall of Bear Sterns, an investment firm that was specialising in the sub prime mortgage. As with the causes of other financial crisis, it was overleveraged and ran out of money. This small ripple slowly morphed into a crisis not seen since the Great Depression.
Lehman Brothers was one of the largest and important investment firms. But about a year after Bear Sterns, it was caught up as a result of the fall out of the subprime mortgage debacle. Other banks stopped lending money to Lehman Brothers and it was in tremendous trouble. It went to the Federal Reserve and the US government for a bailout. The Secretary of Treasury was then headed by one Henry Paulson. Henry Paulson was an ex Goldman Sachs banker and was around when the LTCM crisis happened. The bailout was refused and many conspirators would say the refusal was payback for Lehman’s stingy response to the LTCM bailout. Lehman Brothers subsequently went bankrupt. The event then cascaded with AIG, one of the world’s biggest insurance firms, getting into financial trouble. AIG was too big to let fail and forced the US government unleash a bailout, including the drop of interest rate to near zero.
By now, we were not far from the 9/11 memorial.
After the event of 9/11, stock markets around the world crashed. The US government responded by lowering interest rate to boost the economy. Many commentators argue that interest rates between 2001 and 2007 were lowered for too long and too low and that basically created and fuelled the financial bubble in the sub prime sector and led to the GFC.
We are now in 2013. That means there’s been 6 years of extreme low and unusual interest rate environment (near zero in Europe, Japan and US and about 3% in Australia). This is also augmented with additional large amount of injection of money by the US government. The stock markets have been increasing in the last year or so and many financial expects are saying that this is just another buildup of a financial bubble.