Lehman Again
We all remember the Lehman Brothers collapse like it was yesterday. It was a lead cause of the 2008 recession, although it was an effect of the overall cause, which was the collapse of the housing market. Lehman dabbled with mortgage-backed securities, and it came back to bite them when the bubble popped. Since that led to a period of economic doom for the globe, regulations were put in place in the US to prevent something like that from ever happening and mitigating the effects if it were to happen. That seems to be working as the housing market is doing very well right now, but not near a bubble state, but it might not be working globally.
Recently, Chinese property giant Evergrande has warned investors that it will default on its debt, very similar to Lehman. Their debt sits at a whopping 300 billion dollars, and you might be wondering why. Back in January, Evergrande had a liquidity scare and they haven’t been able to make their payments to suppliers since, leaving them in a hole. Any collapse in one of China’s major banks would create major problems, starting with other banks themselves. This is something that happened in 2008 too, so it isn’t that unreasonable. Next in line would be the investors themselves, and they are already trying to fight back. A group of 100 investors started to protest at Evergrande’s office demanding repayment, so things are obviously serious. Lastly, this could cause a major ripple effect in the capital markets, and it’s not just China. However, due to Evergrande’s importance and its possible impact on the economy, it’s likely that the Chinese government will step in and try to perform a possible bail-out, but time will tell. What do you think about this imminent collapse?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
