The brilliant odd lots podcast had Richard Koo on to discuss his theory of a balance sheet recession. The central idea is that when a credit bubble bursts and the private sector and consumers both start to deleverage it causes the economy to go into a demand loss spiral, which is a counterintuitive result. If excess leverage caused the bubble then deleveraging and repairing your balance sheet is the most rational individual choice, but this de-levering in aggregate is the wrong choice for the economy as a whole. I would highly recommend reading this paper that goes into some details and also reading his book.
It’s been 10 years since the 2008 financial crisis. Astute observers will correct me and point out that the crisis actually started in early 2007 when the Bear Stearns High-Grade Structured Credit collapsed. This was the first collapse of a hedge fund that was loaded up to the gills with subprime CDO’s. If you were following FT Alphaville in late 2006/ early 2007, you’d be ahead of the game. The signs were there! Some great coverage to relive and re-read
So how does this relate to you, young product manager? Some obvious and simple lessons articulated below. Continue reading “Its been 10 long years | Lessons from the GFC”