QOTD: It’s not a “Lehman Moment”

The violent and volatile market reaction after an outcome that surprised the global financial markets had some market commentators raising concerns about the systemic consequences for the global economy and for global capital markets, especially as European bank stocks are still down ~17% since the vote. Predictably, comparisons to the crisis that engulfed the markets in 2008 have cropped up, prompting some to wonder if this is another ‘Lehman moment’. As the firm’s housing/RMBS/CDO strategist during those tumultuous days, my wounds are still fresh and I, for one, respectfully but vehemently contend that it is not another Lehman moment.

Don’t get me wrong. Brexit has indeed unleased a plethora of uncertainties. Protracted political uncertainty in the UK and Europe is likely to be with us for a while, creating negative spillovers for the rest of the world. Our economists think that it likely triggers a downturn, if not a recession, in Europe. Depending on how politicians respond, concerns about euro break-up could start to creep back into markets, causing financial conditions to tighten materially. I agree with most people that all of these potential outcomes portend further downside to risk assets, despite the recovery in many markets in the last few days. However, we think that there are a number of material differences between then and now, and the prospect of Brexit resulting in a global systemic crisis of the magnitude we witnessed back then is limited.

- Vishwanath Tirupattur
Strategist Head of US Fixed Income Research
Morgan Stanley