Why did nobody see it coming? When the late Queen asked this question about the crash of 2008, on a visit to a London business school, no one had a clear answer. Why, in a financial world crawling with regulators, did no one spot that subprime mortgages were toxic, on the brink of falling apart? The simple answer is that we got too comfortable. We assumed that times had changed and dropped our guard.
It looks as if we’ve dropped our guard again. On the way out of the financial crash, we seem to have simply and blindly assumed another set of false beliefs: that ultra-low interest rates, designed to help tackle recession, were here to stay. Entire business models were built on this premise. But then inflation returned – and interest rates shot up. And now we begin to discover just how many banks, pension funds and other companies have bet the house on the idea that rates would never really rise again.
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