Erste Asset Management

Tenth year anniversary: global financial crisis kick off

Tenth year anniversary: global financial crisis kick off
Tenth year anniversary: global financial crisis kick off
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Ten years ago, the investment bank Lehman Brothers’ insolvency escalated the financial crisis, driving the global economy to the brink of collapse. Although the worst consequences of the crisis have been averted and stock markets have risen again, the after-effects of the crisis can still be felt today.

The financial crisis on the US real estate market began with mortgage banks increasingly granting badly secured real estate loans. These were securitised and placed with investors as a form of investment. When US housing market prices plummeted, rendering many mortgages worthless, global interdependencies caused a cascade. This reached its peak with the bankruptcy of the renowned US investment bank Lehman Brothers in September of 2008.

The Lehman bankruptcy made huge waves in the stock markets; distrust of the financial system spread rapidly around the globe. World trade saw a significant dip, plunging many countries into a recession.  In the US, the economy shrank for four consecutive quarters, and unemployment rose to its highest level since the 1980s.

During the financial crisis, bailout packages and rate cuts saved banks and markets from collapse

Governments and central banks responded to the financial crisis with immediate emergency measures. The US as well as many European countries provided massive government aid and bailout packages, saving numerous banks and insurers from collapse. A few weeks after the Lehman bankruptcy, the world’s premier central banks lowered their key interest rates in a theretofore unseen concerted effort.

With further cuts, the central banks lowered their key interest rates to zero in order to re-ignite loans and investments, and boost the economy. The European Central Bank (ECB) successively lowered its interest rates until 2014 and finally even demanded penalty interest rates for bank deposits. Meanwhile, central banks attempted to lower interest rates on the financial markets through large scale bonds acquisition. The ECB began buying bonds in 2010, with an extensive EUR 60bn-per-month purchasing program to follow later.

In Europe, the financial crisis exacerbated Greece’s financial situation. Starting in 2010, the EU partner countries and the International Monetary Fund saved the debt-ridden country from bankruptcy with a total of EUR 289bn in subsidised loans. The Greek debt crisis reached its peak in 2015, when Greek banks were forced to close for three weeks following the country’s imminent insolvency. In the summer of 2017, the last part of the euro bailout package for Greece expired, so the country has to carry its own weight again financially.

In the meantime, the stock markets have recovered again. Leading international indices such as the Dow Jones and the German DAX have returned to their pre-crisis levels and climbed to new all-time highs, and the US recession has long since passed. However, key interest rates paint an ambiguous picture. While the US Federal Reserve has already begun to raise its interest rates again, the ECB’s interest rates practically remain at zero. The crisis is also affecting the real estate market; in countries such as Germany and Austria, prices for apartments have risen sharply in view of record low interest rates. The general conditions in the financial sector have also changed as a result of the crisis: since 2008, international supervisory authorities’ strict capital requirements have forced banks to be more robust.



Forecasts are not a reliable indicator for future developments.


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