What do September 11th have to do with Lehman Brothers and what does any of this have to do with global finance and European economy? Let's take a quick look:
September 11th and the American Response
I recently read an interesting op-ed in the New York Times where it was argued that President Bush missed a giant opportunity on the morning of September 12th. It was suggested that the past decade has been a lost decade for the United States because President Bush didn't rally the country to make the sacrifices needed to combat terror. Instead, he continued to cut taxes while borrowing heavily to pay for two wars and to create the massive Department of Homeland Security. Today, this editorial argued, we see the results of this fiscal policy, where the United States is mired in a recession.
Lehman Brothers
I mentioned Lehman Brothers in the title of this piece because the collapse of that bank is considered by many to have been the "?Black Monday" of the current global financial crisis. It can be argued that had President Bush pushed for more austerity following the September 11th attacks that the global financial crisis might have been averted since America wouldn't have been awash in such easy money from cheap loans. However, hindsight is, as they say 20/20. Let's take a look at the global economy today and see where things could go wrong.
A European Lehman Brothers?
Given the fragility of the Euro zone, there is a real possibility of there being another collapse on the scale of Lehman Brothers in the United States, only this time in Europe. Remember that the collapse of Lehman Brothers happened because of a panic, with people rushing to withdraw their money and selling off the stock to avoid being left holding the bag.
What the Europeans are Doing
There is a real effort afoot by the Euro Zone governments to avoid another Lehman Brothers as they all realize that such a collapse would be a disaster for Europe. To that end, bailout funds have been set up in an effort to avoid the possibility. However, ultimately what is really needed is structural reform of the European financial markets to ensure that these problems can't crop up in the future.
What You Can Do
While I certainly don't want to cause a panic, I'm thinking that selling short on some of the shakier European banks could be a good idea. Even if the Euro Zone governments race in to protect any failing bank (which I suspect they will do), the stock prices will still tank if a bailout is required and this could be a great way to make some decent returns on your money.
It's also a good time to get into the Forex markets as there is potential for prices to jump as stock prices go down. We've already seen the US dollar steadily rising against several world currencies, including the Euro, with the dollar currently trading at 71 cents to the Euro, up from 67 cents back in May. If trouble persists in Europe and the debt crisis isn't quickly controlled, we'll likely see the dollar - and other currencies - continue to gain momentum.
A Final Note about 9/11
My heartfelt sympathy to all those who lose loved ones on September 11th. I was in New York City that day and remember it well. May we never again face such evil in our lifetimes.