Global Perspectives: The Dollar's Bizarre Behavior During the Financial Crisis

Foreign Exchange - Global Perspectives
The Dollar's Bizarre Behavior During the Financial Crisis
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This week marked the 10th anniversary of the downfall of global financial services firm Lehman Brothers — the largest bankruptcy filing in U.S. history. While that was not the official start of the Great Recession, the factors that led to it and the wild markets and financial damage left in its wake certainly stand as a focal point for the financial crisis.
At the time, I was teaching macroeconomics at Pepperdine University. I quickly realized that the textbook was almost useless in that environment, and I did most of my lessons from news stories. Often, what I assigned for the week was outdated by the time the class met again the following week.
One conundrum that many students and City National clients asked about at that time was the bizarre behavior of currencies. Stocks dropped more than 40 percent in the six months following the Lehman bankruptcy. Bond prices shot through the roof as a flight to safety, so much so that the 10-year Treasury yield fell from near 4 percent to just above 2 percent during the last two months of 2008.
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