A Lehman Moment?

On Friday, Silicon Valley Bank failed. This is the second-largest bank failure in US history.

The failure of Lehman Brothers on September 15, 2008, is widely considered to be one of the key events that triggered the 2008 global financial crisis. This started a series of dominoes to fall, that affected banks that had lent Lehman money, and eventually caused banks to stop lending to each other. The US government had to step in with its famous TARP (Troubled Asset Relief Program) and inject a lot of money into the financial system.

So are we facing a Lehman moment?

Many say we are not. Many of the dominoes that fell in 2008 were risky investments like Credit Default Swaps (CDS). People then started to reprice risky assets, and those assets no longer held much value. Of course, we only knew about the scope of the issue after the fact, so we may be currently blind to the types of risky assets banks are holding.

It’s interesting that the markets have quickly flipped from a position of the central bank raising interest rates (“higher for longer”) to interest rate cuts again. Suddenly, the US is in trouble.

The market is terrible at prediction. But also, the Fed tends to follow the market.

On the one hand, I really hope this isn’t another Lehman moment. That whatever happens next week is contained, and no other banks fail. A total breakdown of the US economy will be painful, and hurt a lot of people.

And on the other hand, I do wish for it to be over. And maybe more needs to happen for it to be over. If the US economy is a house, and the house is slowly crumbling. And they keep repairing the house with duct tape and string, and filling holes with bubblegum… is it better if the house collapses and they rebuild the house properly?

I don’t know the answer.

Reminds me of the Chinese curse, “may you live in interesting times”.

Time for it to be boring for a while.