There appears to be a movement afoot to bring the term “Lehman Moment” into the vernacular. But like most financial buzzwords, the phrase is usually not used in the right context. The Lehman bankruptcy occurred in the middle stages of a worldwide selloff. Lehman was but one casualty among many to occur between late 2008 through the first quarter of 2009. Right now, developed markets are only slightly below all-time highs, and have been on a one-way rally for several years. This, however, did not stop a Bloomberg editor from calling the bailout of a China trust fund a “Lehman Moment.”
So, what is a “Lehman Moment” actually? Is the story is referring to the early signs of a crisis, the proverbial “canary in the coal mine?” If so, I would suggest to use instead the phrase “Bear Stearns Moment.” If the story is about the trigger point to which a central bank steps in, that would be a “Long-Term Capital Moment.” If the story is about a massive head-fake during a period of market stress, it is a “Flash Crash Moment.”
In 1998, during the dreaded “Asian Contagion,” PIMCO’s Paul McCulley coined the term “Minsky Moment” after noted economist Hyman Minsky. Minsky’s research demonstrated how long periods of stable, low risk/high reward in the market led people to become complacent, come to expect permanent high returns, and eventually become over-leveraged. “Stability breeds instability” according to Minsky. The “Minksy Moment” is the point at which participants realize the game is over and all head for the exit at the same time.
In 2009, however, the full-fledged market-clearing panic came six months after the Lehman bankruptcy, when it looked as though the entire financial system had collapsed and there was nothing the Fed could do to stop it. At that point, no one company or piece of news could be singled out as the cause. So what do we call it?
Give me a moment.