With the bankruptcy filing of Lehman Brothers and the shotgun wedding between Bank of America and Merrill Lynch, many investors are concerned with the viability of our financial markets. Oh, how short our memories are.
Ten years ago, in 1998, a hedge fund, Long Term Capital Management, failed, creating market panic similar to what we’re seeing today. The fear at the time was that, due to the size of the fund and its leverage, having to sell its positions could destabilize the entire financial system.
Similar to today, the Federal Reserve and other large banks worked to minimize the damage from the collapse and the world financial system was ‘saved.’ Not only did the doomsday scenarios fail to materialize, but the stock market went on to log one of the longest bull market runs ever.
The moral of the story is that, altough financial crises like this are scary, even for the professionals, this time is most likely NOT DIFFERENT and our financial system will not only survive, but most likely survive.