It has been three years since the fall of Lehman Brothers shook the global financial system to its core. What lessons have been learnt since?

Stephen Snowden

Fixed income manager, Kames

Liquidity, or lack thereof.

In the aftermath of Lehman, the corporate bond market was completely fractured. With the credit market lower than at any point in its 100 year history, many a rock-bottom price could be found. Managing liquidity is vital. A balance has to be struck between having ample liquidity while at the same time exploiting the bargains.

This is much easier said than done. While prices are falling, sellers are willing to accept low-ball prices. Buyers in market panics have to be prepared to accept that they are buying too soon. The absence of liquidity will probably drive prices lower. But markets do turn. And when they do, liquidity works in the opposite direction. Sellers are willing to hold on a little longer.

Buyers emerge now the direction has changed. But the low-ball prices are gone. Those willing to buy in illiquid markets will eventually be handsomely rewarded.

Stuart Thomson

Chief market economist, Ignis Asset Management

The most important lesson to learn from Lehman’s collapse is poor policy decisions can exacerbate an already difficult position.

The major industrialised economies were already in recession prior to Lehman’s bankruptcy as the vast leverage bubble in financial and consumer borrowing began to deflate following the shadow banking problems in summer 2007. Hank Paulson’s fundamental error was compounded by the temporary refusal to pass the TARP bill and the resulting freeze on global trade provided the transmission mechanism from the financial crisis to the global economy.

Governments responded by expanding their balance sheet, but have subsequently found that piling debt on top of debt is not sustainable. Unfortunately, this realisation will increase the risk of further policy mistakes; with counter-productive fiscal austerity, insufficient monetary stimulus, election politics in Europe and the US all providing traps for unwary politicians and complacent financial markets.

Paul Brain

Leader-fixed income, Newton Investment Management

The environment since Lehmans has been all about deleveraging with a lack of investment and subdued consumer spending keeping economies close to stall speed and employment growth non existent. Meanwhile the biggest risk to the global economy remains Europe.

Nothing has been sorted during the summer months and if anything, some things have become worse. Fiscal austerity is prevalent throughout but economic growth is not. So far, the authorities have tried to put off the inevitable but as the economic numbers for the northern countries start to turn down, there is a growing realisation that things are coming to a head.

The southern states are unable to reduce their deficits through fiscal austerity because their economies are not growing (recent Greek figures confirm this). A proper Greek default (50-60% haircut) with Greece leaving the euro may be, like Lehmans, an event we come to realise after the fact that we should have expected to happen but at the time thought wouldn’t be allowed.