How time flies. This month marks the tenth anniversary of the demise of investment bank Lehman Brothers. A collapse that triggered the 2008 global financial crisis and in the UK the near fatal rupturing of the banking system.
I can vividly remember the images of Lehman Brothers’ UK staff flickering across our screens as if it was yesterday – gloomily leaving their offices in London’s Canary Wharf for the last time, carrying their belongings in boxes.
In the UK – and elsewhere across the world – financial carnage ensued. Only Government intervention and taxpayers’ hard- earned money saved HBoS, Lloyds TSB and Royal Bank of Scotland from the knackers’ yard.
Financial crisis: The collapse of Lehman Brothers came a decade ago
Austerity ensued and jobs were lost. Ten years on, we are still not out of the mire.
I was reminded of Lehman’s pivotal role in the near death of capitalism a few days ago when I had the privilege of visiting the National Theatre in London to watch The Lehman Trilogy.
Although the play is long at more than three and a half hours, it sweeps by as the tale of Lehman Brothers is told, beginning with the arrival of Hayum (Henry) Lehman in New York in 1844 from Bavaria. Brothers Emanuel and Mayer followed soon after. Each bringing something to the table. Henry, hard-working and prickly. Emanuel, an innovator with an eye on the next opportunity. Mayer, the conciliator.
Beginning with little but a willingness to work all hours and possessing buckets of business acumen, the Lehmans ended up in Alabama selling clothes to the cotton workers. They then became cotton traders – middle men between the producers in the south and the buyers in the north.
Diversification, flirtations with bankruptcy and evolution followed – as did wars, death and depressions. Through the generations, Lehman Brothers evolved, trading coffee and helping finance the building of the country’s railways.
By the time the Lehman family influence had waned – with the passing of Bobby, grandson of Emanuel and head of the business, in 1969 – Lehman Brothers was well on the way to becoming the obsessive money-making machine it ended its days as, aggressively trading financial products in order to generate profits irrespective of their suitability.
If you have a spare night between now and October 20, I implore you to watch this terrific play. It is an advert for the American ‘dream’, all that is good – and bad – about both American free enterprise and the West’s sprawling financial services industry.
With household debt in the UK at frightening levels, banks worryingly loosening lending criteria to maintain growth and interest rates edging upwards, it is also a reminder that no economy is immune from a future financial crisis. That – for better or worse – is the way of capitalism.
Saving for the future
I am a big believer in putting a little money away every month for the future. Via a pension or a tax-friendly Individual Savings Account. A sound personal finance strategy even though with a Budget just around the corner, the tax attractions of pensions may soon be curbed (don’t do it Philip Hammond, leave our pensions alone).
There is a role for both index tracking and active investing.
Increasingly, the building of my nest egg involves making choices about where my money is invested. In UK equities, the land of the free (America) or in a fund with a global mandate? In funds which are passively managed, tracking a specific stock market, or those that are run by a manager whose aim is to beat a benchmark?
In recent years, passive funds have become increasingly popular as their costs have come down – and most (not all) active funds have refused to follow suit. Many experts now believe, some zealously so, that passive funds – the Lidls of the investment world – are the future. We do not need actively managed funds.
I do not agree and nor for that matter does asset manager Royal London. In an unusually balanced report on passive investing, to be published tomorrow, it argues there is a role for both index tracking and active investing.
Indeed, it says that if the move towards passives becomes inexorable, it will limit investor choice (bad news) and compromise corporate governance standards.
Yes, let’s welcome the Lidls of the investment world. But there should be plenty of room for the Waitroses. Price is not everything. Investment return is.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS