Remembering the Financial Crisis

There are very few moments in life that you remember exactly where you were when it happened. For my parents, this was the assassination of JFK and the moon landing. For me, it is September 11 and the Great Financial Crisis. As the headlines start to roll in on the 10th anniversary of the collapse of Lehman Brothers.  I find myself revisiting the memories of that life changing experience.

This week marks 10 years since Lehman Brothers collapsed. In reality, the financial crisis began more than a year earlier with the implosion of two Bear Stearns hedge funds invested in subprime mortgages. That was June of 2007. In August 2007, I took a promotion at the brokerage firm to be an analyst in a branch that backed up to the Lehman headquarters in Time Square. We could see Lehman employees through the windows, something I never thought twice about before things went south for the bank.

Several important events took place between then and March 2008, but I must have been busy with my new job and studying for level 3 of the CFA exam. I remember getting my $300 fiscal stimulus check in the mail later in the year. It was a blip in my ridiculous Manhattan budget. My first monthly paycheck barely covered rent.

I was a bridesmaid in a wedding in Asheville, NC on March 15, 2008. While getting dressed for the rehearsal Friday evening, the news of JPMorgan buying Bear Stearns for $2 per share broke. This was the first time I knew things were serious, and it kicked off a habit of watching financial news on Sunday nights to keep up with developments.

I vividly remember a colleague reporting that Lehman’s stock had dropped below $3. We were pitching to a 401(k) prospect in Connecticut and stopped for lunch. The company went under a couple of weeks later after failing to reach a bailout agreement with any potential buyers. Employees left their desks on Friday and returned on Sunday to collect their personal belongings. How crazy that must have felt.

There were reporters on the street outside the Lehman building sticking microphones in the face of anyone wearing a suit. I was twice approached for an interview when walking to grab lunch. My brokerage firm sold more than $1B in Lehman backed structured notes to their customers. I remember one client who lost $750,000 in a “principal protected” Lehman note.

In early September, Fannie and Freddie collapsed. This was especially shocking because Fannie Mae had issued preferred shares less than a month earlier. Some of the brokers in my office sold shares to their customers. It felt like a robbery. Hank Paulson looked like a ghost at that press conference, and it put a chill in spine.

Merrill was forced to sell to Bank of America, and several mortgage heavy banks went under. Clients who bought broker sold CDs didn’t realize they were over the FDIC limit at IndyMac and Washington Mutual. Money in safety seeking investments was gone.

The day the commercial paper market froze, I was meeting with a high yield bond manager in the Solow Building overlooking the southern edge of Central Park. We abruptly ended the meeting and literally ran back to the office. At that point, I believed it was possible that the payment system could shut down completely. News reports about paychecks not hitting accounts were a real possibility.

On Yom Kippur, Congress failed to approve the TARP package designed to stabilize the banking system. The Dow Jones dropped 777 points, more than 8% intra-day. We told clients that the market could only drop that much for 21 more days before it hit zero. Sometime later that week we had the annual management appreciation dinner for my team. In the basement of Sparks steak house, we downed bottle after bottle of Duckhorn Cabernet to numb our anxiety.

The rest is a bit of a blur. I survived many rounds of layoffs and was finally on the chopping block in April 2009. It felt like every young person in Manhattan was laid off, and we managed to make the most of it. I went on to pass level 3 of the CFA exam and earn my charter that fall. I was hired by an RIA firm before my severance ran out and thus, began the next and best chapter in my career.

The Great Financial Crisis taught me many lessons. Nothing is certain. Change is inevitable. Diversified portfolios can decline by 40-50%. Holding on to company stock is a potentially life altering mistake, as I witnessed with employees of Lehman, AIG, and Citigroup. Yet life goes on. We recovered, portfolios rebounded, and clients still retired at almost the same time as planned. The few we couldn’t convince to stay invested took permanent losses, and that still haunts me.

I am a better investor and a better advisor because of these experiences. Most of our clients are better investors, too. They’ve seen the worst, and they learned that markets reward discipline. I can’t believe a decade has passed. I hope that the distance helps mitigate the reluctance of younger investors and save and invest in stocks.

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