10 years ago: A harbinger of 2008 financial crisis

NEW YORK: The failure of Lehman Brothers on September 15, 2008 triggered a series of convulsions in global finance that ultimately led to the worst crisis since the Great Depression.

Yet a harbinger of the Great Recession came more than a year before the Lehman landmark almost exactly a decade ago.

On August 9, 2007, French banking giant BNP Paribas suspended a trio of funds because of difficulty estimating the value of subprime mortgages.

The Dow Jones Industrial Average plunged nearly three percent on the news, although it stabilized soon after.

“It was clearly the first sign,” said Kenny Polcari, who has been on Wall Street since 1985 and worked at global brokerage ICAP at the time.

“People were trading products that were less regulated than they should have been,” he said. “People were trying to understand the web created by all those very complex products.”

At a White House press conference later that day, President George W. Bush suggested worries about a violent housing bust were overblown.

Bush was briefed“about whether or not there would be precipitous decline in housing, or whether it would be what one would call a soft landing,” the then president said.

“And it appears at this point in time that it looks like we’re headed for a soft landing,” Bush continued. “That’s what the facts say.”

Under former Federal Reserve chair Alan Greenspan, low interest rates encouraged consumers to take on debt and cleared the path for just about anybody to become a homeowner.

“People could walk into a bank and borrow money even without a job,” Polcari said. “They were giving money away.”

A key step that set the stage for the crisis came when President Bill Clinton in 1999 repealed the depression-era Glass-Steagall law, clearing the way for consumer banks to work in investment banking and for greater risk to enter the financial system. — AFP