The Financial Crisis of 2008
In September of 2008 a match was struck in the market and is now remembered as The Financial Crisis of 2008. The start of the crisis can be credited to the failure of Lehman Brothers in which Barclays stepped in to bail them out. When you have a major economic crisis event similar to what happened in 2008, both positive and negative events can occur for a while but will eventually fade away.
Five Permanent Changes
If you look at one of the things that’s important to us in the markets moving forward and how it impacts your money, there are five permanent changes that have occurred since the financial crisis of 2008. First, the Federal Reserve is more actively involved in the economy than they used to be. Part of what the financial crisis caused was a liquidity crisis. Our Federal Reserve was able to quickly counter that with quantitative easing and have been much more active since then. Secondly, the leverage in financial firms that caused so much disruptiveness, we no longer have. Firms having less leverage and building their balance sheets on earnings makes for a much safer financial system. The third change has to do with financial transactions that are placed across borders. The ability for contagion to spread, like the crisis in 2008, is more in check now with rules and regulation. This makes it more difficult for contagion to migrate. The last two are arguably the most important. The fourth item deals with how the housing market has changed forever in the United States. Underwriting mortgages is different in ways such as who can both offer and qualify for mortgages. This represents a fundamental change. The client base has become narrower. Banks are now offering mortgages to select and wealthier clients. Housing and construction are focusing more on quality rather than quantity. The final and most important thing to focus on is that the financial crisis was much like The Great Depression. It changed how Americans price and assume risk. Americans and businesses seem to be taking less risk because of the crisis. Up until last year, with a lot of the tax improvements, we didn’t have a major line of capital expenditures by business. They weren’t investing in themselves, buying back their own stock, as much after 2008. That has started to change this year. Individuals see their homes as one of their largest investments. If you change the dynamics of home pricing, building and purchasing that can start to affect individuals.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
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