Working as a junior correspondent for The Independent, I was invited to the plush top floor executive dining rooms of Lehman Brothers by their then head of media relations. 

Over expensive French wines and smoked salmon, with the vast expanse of London stretching below us, my host spent three hours trying to convince me that the bank was inherently well capitalised and the rumours around subprime mortgages were unfounded. 

Of course, that epoch ended with Lehman’s ensuing collapse in September 2008. 

Now, as soaring inflation forces the world’s central bankers to hike interest rates, another era – one of ever-low interest rates – is also coming to an end. The interesting question is: What will come to signify this chapter of economic history?

The decade following the financial crisis was not one of booming economic growth and ever higher wages, at least outside of investment banks or Big Tech. 

According to the OECD club of developed nations, real wages and productivity have been stagnant for 15 years. 

The Financial Times has calculated that real wages in the UK grew at an average of 33% per decade from 1970 to 2007, but did not grow at all in the 2010s.

However, for homeowners, particularly in the US and UK, low rates created a real estate boom. Lower mortgages cushioned the impact of stagnant wages. Sky-high house prices also took the edge off moribund earnings; people who were lucky enough to be on the housing ladder felt better off, even if only on paper. 

For those who didn’t own property, the effects were doubly bad. 

For those stuck between mediocre salaries, rising rentals and soaring property prices, and unable to afford a deposit, the lowest rung of the property ladder moved ever further out of reach.

Visit Daily Maverick’s home page for more news, analysis and investigations

Low rates similarly changed the car market. Instead of buying a new car up front, it became normal to finance it on record-low interest rates. This allowed people to drive fancier cars. In the UK in 2006, 46% of new car registrations were financed at the point of sale. By 2019, that figure was almost 92%.

Then, ultralow costs of capital allowed a whole category of companies that made no money to flourish. 

For such “start-ups”, companies valued on new metrics such as “customer acquisition cost” or “burn rate”, growing revenue was unimportant – let alone being cash flow positive or profitable. WeWork, Uber, Deliveroo and Klarna were among the most famous of these, but there were countless others. 

Funded by the tsunami of free money, most start-ups were founded not with the purpose of making money or being sustainable businesses, but simply to successfully close the next fundraising round, as venture capital firms and angel investors sprayed capital around indiscriminately. 

An entire Ponzi scheme industry of “founders” going from one successful “series A” to another proliferated, leaving a string of failures in their wake. It remains to be seen how many, if any, will still be around in five to 10 years. Traders now openly talk about the approaching “ShitCo Reckoning”.

But the most pronounced effect was asset price inflation. With the discount rate going ever lower, valuations – of increasingly uncertain cash flows and riskier assets – could only ever go higher.

Equities, particularly tech, provided the best example, but there were more extreme illustrations. As rates have risen, the prices of metaverse real estate, crypto and NFTs have crashed – they are all starting to look like anachronistic relics of another age.

One moment will forever embody this for me. 

In November 2021, pretty much at the apogee of the bubble, I happened to be in Dubai. A friend managed to make a quick $20,000 in 20 minutes by trading a few now-worthless NFTs, and then took us for dinner to one of the most expensive restaurants in the city on the proceeds. 

Looking around at the scenes of excess, one could not help notice that we were not the only table celebrating with the ill-gotten gains of the largesse of central banks. 

Of course, such artificially generated demand can only mean one thing: higher prices, inflation and inevitably higher interest rates. 

It should have been evident what was coming, but perhaps we were all too busy celebrating to realise it. BM/DM