Friday 1 April 2011

The perfect storm: Introduction

In 2008, Lehman Brothers went bust.

In many ways, it was a perfect storm.  Many things, related and unrelated, added together, and produced a unprecedented financial storm and swept through the whole world.  It was unprecedented and unexpected.

Or was it?

Yes and No.

Smart mind should have been mindful of the fragility of the system.  Debt, derivatives, and the inter-connectedness made the system work like charm in good time, but they blew up at the time when we needed it to work.

Wasn't debt supposed to be a good thing in capital structure theory? Wasn't derivatives making the financial market more efficient?  Wasn't globalisation making the world economy growing faster?

They were, but they all broke down in the time of crisis, and they will fool us again.

The reason to start writing here is to tell my prediction of how a perfect storm in the world economy will happen again soon.

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