Asia most at risk since Lehman collapse, says ex-trader
Trader-turned-author fingers region as most susceptible to crisis amid surge in interbank lending rates, jump in default protection costs
Asia will be where the next international financial crisis explodes and stress levels in the region's banking system are already at their highest since the collapse of Lehman Brothers triggered a global market meltdown five years ago.
A measure of 21 key risk indicators covering everything from investor complacency to bank-to-bank trust shows systemic risk is on the rise, says Lawrence McDonald, a former Lehman trader turned independent risk consultant whose 2008 book about his experiences and the bank's final days turned him into a best-selling author.
Crises metamorphosise and the next one for sure is going to be in Asia. My big worry is that something happens and it affects Japan, because Japan has zero room for error
"All of these indicators in Asia are extremely elevated," McDonald told the in a telephone interview from his base in New York, to which he had just returned after a 16-nation speaking tour on the risks that still stalk the global financial system.
Lehman's collapse, five years ago today, and its subsequent filing for bankruptcy protection, triggered the worst maelstrom in markets since 1929's Wall Street Crash and set off a chain reaction debt crisis in Europe that is still rippling across the continent.
McDonald's unique "Bear Traps" risk index captures a range of warning signs that he says were ignored at the time of Lehman, but which correlate with the financial stress that can set off crises.
A spike in interbank borrowing costs and rising costs of protecting against default at some of the region's biggest banks are the ones that speak loudest to him.
"Put simply, banks are pulling back on trust," McDonald said. "Capitalism doesn't work without it."
