Sep 24, 2021

Letter #45: Too Big To Fail - A Story of Evergrande and Excess

Read now to learn how Evergrande and Bitcoin don’t mix.

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Joshua Guest
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Dear Readers,

The year was 2008 and the world was in the midst of the worst financial crisis it had seen in decades. Stock prices swung wildly from day to day. Millions of people lost their homes and their jobs. And companies of all sizes were failing left and right. But none of them were as big as Lehman Brothers.

Before filing for bankruptcy, Lehman Brothers was one of the largest investment banks in the United States and had several hundred billion dollars of assets. The bank had been in operation for over 150 years and had diversified its investments across a variety of markets and asset classes. That preparation however, failed in keeping Lehman Brothers afloat and its bankruptcy is believed to have played a significant role in what is now known as the Great Recession.

The financial disruption from the bank’s collapse was immediate. The Dow Jones, for example, saw what was then its largest one-day drop since the aftermath of the 9/11 attacks in the United States in 2001. And the effects rippled through the economy for months afterward.

The fallout from Lehman Brothers’ collapse also had a much less apparent effect: it was trumpeted by many as proof of the need for governments and markets to support companies that were deemed “too big to fail”, or in layman’s terms (pun intended), companies that were so interconnected with the markets that their failure would supposedly cause near irreparable damage to the rest of the global economic system.

Why do I bring up what by now in 2021 must seem like ancient history to many readers? Because history may be about to repeat itself.

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