So much has happened in investors’ lives over the past decade that it is hard to pin down the top events that took place. Nevertheless, there are always those singular events that completely eradicate massive fortunes on the market and change the fundamental way in which investors look at wealth creation and completely eradicate massive fortunes on the market.
Here are the list of most groundbreaking events that took place in the past decade that shook the very foundation of our financial systems.
For most young professionals, it’s hard to imagine what the world was like when the internet was just born. The new technology was barely understood, but many around the world were entirely convinced that it was going to dramatically change the world forever.
In many ways they were right, companies like Microsoft and Google did, in fact, go on to shape the future of our society. But in many other ways, the investors at the turn of the century were wrong. Their over enthusiasm led to a situation where many useless dot.coms were selling for small fortunes while they made no money. The bubble popped in 2001 and the tech market still hasn’t fully recovered from its effects.
The 9/11 terrorist attacks were such a major event that they shook not just the financial markets, but also the world. The political and social meltdowns were much larger than the financial losses people on Wall Street experienced during this time. However, that is not to say the financial system wasn’t affected. The New York Stock Exchange was shut down for only the third time in its entire history during the attacks. 18,000 small businesses were displaced and over $60 billion was incurred by the insurance companies.
At the time, Enron was one of the biggest energy companies around. The business model was considered nothing short of genius - Fortune named it the most innovative company for 6 years consecutively for entering diverse fields such as online energy commodity trading and weather risk management derivatives.
But things quickly went south when the accounting firm handling the company's finances, Arthur Andersen, was caught in a major fraud scandal. It turns out the company had hidden billions in debt from the stakeholders and had pressured Arthur Andersen to ignore it all. When the company eventually imploded, investors lost $60 billion and one of the five biggest accounting firms was under dissolution.
The stock market rallied, as it usually does, after the crash during 9/11. This was to be one of the shortest rallies in history, however, since prices began to nosedive in 2002. Investors were rapidly losing confidence in the stock market, after what happened with Enron and other corporate scandals, and the prices of many companies hit lows not seen since the late 90’s.
War on Terror
The United States launched an all-out war on terror in the 2003, following 9/11. The costs of this war, which mostly centered around Afghanistan and Iraq, are estimated around $944 billion so far. Costs are still ongoing and there is no doubt the war has affected commerce and life in the country on a grand scale.
The chairman of the NASDAQ decided to try his hand at wealth management and start his own investment advisory firm after retiring from the chairmanship. After many years of running his company, Madoff admitted it was all a Ponzi scheme. He took money from investors and convinced them they were getting good returns by paying them from cash supplied by other investors.
This is known to be one of the biggest investment fraud schemes in history. Madoff’s investment company collapsed and took $18 billion of investor money along with it. He has been sentenced to prison for 150 years. Madoff may be one of the biggest, but he certainly isn’t the only high profile defrauder – every year, new fraudulent activities are revealed, many of them from major financial institutions. While this could deter investors, the fact is that these situations are still rare in the grand scheme of things.
What happened in 2008 was in many ways a financial perfect storm; banks were on a lending spree and investors were hungry for high-yields. Add to this a desire to give mortgages to people who could barely afford them, repackage these junk bonds as investment-grade bonds, and you have yourself a recipe for disaster.
The subprime mortgage crisis from a few years before was starting to take its toll on some of the biggest banks on Wall Street. Players who had been in the game for almost a century were now looking like they were on the verge of collapse. Lehman Brothers itself was more than 150 years old when it declared bankruptcy in 2008.
Stock markets, not just in the U.S., but around the world, collapsed immediately. The financial meltdown was the single biggest financial event since the Great Depression and probably the largest economic disaster of the past century.
These were the seven events that most significantly disrupted the stock market in the past decade or so. Their impact can still be felt in the economic climate today (and may continue to be felt for years to come), but the biggest lesson they teach us is that markets are fickle, life is unpredictable and opportunities almost never come without risks.
While these events could be seen as cautionary tales that are reason to stay far away from the stock market, the fact is that each of these events helped improve a system that we’re still learning about 200 years after its inception.
About the Author: Andrew May is a Chicago business and finance attorney who specializes in FINRA arbitration & U5 defamation. When he’s not serving his clients or spending time with his children, Andrew also enjoys sharing his knowledge and expertise as a guest blogger. For more info, visit http://www.MayLawpc.net.