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Lessons From the GFC

The financial crisis of 2007-8 caused markets to fall sharply and led to a global recession. But is the financial system any more stable today?

In this video, Philip Augar, who has written extensively about the crisis, shares his thoughts.

The regulators are up to speed now, they are on the case.

“Financial institutions themselves are better protected, they hold more cash, they hold more capital, leverage is much reduced”.

The financial institutions have had to think through what happens if things go wrong and the control of the industry is better.

But none of those things should make us complacent.

There could be another financial crisis at some stage, although the cause will probably be completely different.

What we have now is a more refined, safer version of the old system that got us into all this trouble in the first place.

What we don’t have is a completely new system.

We can’t completely give financial markets a big tick and say everything’s fine now.

It’s always right to be vigilant and to be alert.

Investors should see these sorts of episodes as learning opportunities.

So, what are the key takeaways from the global financial crisis?

“If I had one takeaway from the financial crisis for investors, funnily enough, it wouldn’t be ‘don’t panic’, it wouldn’t be ‘don’t stretch yourself too much’, although both of those things are true. The main thing I’d take away is to be very careful of ‘groupthink’. The very fact that everyone thinks the same thing for me is a red flag.”

Philip suggests we be prepared to ask a different question and come up with an answer that is not the same as everyone else’s.

Of course, no one can predict what the financial markets have in store for us in the future. But we can learn lessons from the past.

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