Saturday, June 13, 2009

Too big to fail

In terms of total assets, Lehman Bros. bankruptcy was larger than the next 15 largest US bankruptcies.

It was the seminal event that sent the world economy into recession. With hindsight, letting it go doesn't look such a smart idea.


  1. Not so sure. The bankers have us all held to ransom now. The obscenity of taking bonuses when they have so fuck#d up is them just laughing at us. The whole damned lot of them should have been allowed to fail. The short term would have been awful, but now they know they can do whatever they like, we will pay for this til the end of time.

    The price for a rescue should have been the actual execution of the leading bankers, Chinese style. No, we pension them off and let them keep their bonuses. Too big to fail? They have won. We are slaves.

  2. Banks are not 'too big to fail', never have been, never will be.

    Agreed, Lehmans went hand in hand with a general bursting of the confidence/credit bubble, but a bubble it a bubble is a bubble, it will always burst in the end.

  3. I think it was an excellent idea to let Lehman go bust.

    Are risk takers to be subsidised by taxpayers because they are at risk of losing capital that they have invested badly but in full knowledge of the risks ?

    It's time that all governments introduced more competition into investment banking marketplaces and reduced the non-transparent corporatist cosying-up attitude that has prevailed to date.

  4. I think it was a good thing as after Lehman's failure institutions were in no doubt that they had to consider the counter-party risk of those who they were dealing with - and couldn't rely on a guaranteed government bailout to do their credit risk for them. This is as it should be in a free market and should help reign in risk taking.

    It also crystalised a lot of derivatives which hither too
    people had thought of as merely kinda risk reducing thingies which all cancelled out nicely.

    Mr Wadsworth is right though. When you have a bubble it's gotta burst. If it hadn't been Lehman it would have been something else.

  5. I bet most of those 'assets' were little more than entries on a balance sheet. Letting financials go bankrup doesn't negatively affect the rest of the economy nearly as much as these numbers suggest, it's more akin to busting the chains that are keeping the real economy captive.

  6. Bankruptcy is pain in the short term. I wish the UK government had just honoured the 50K scheme with our domestic banks, wiped out the shareholders and then they would have been in a much better position.

    Somebody has to take a loss. Why the taxpayer?

  7. No firm is too big to fail. In fact, the sure knowledge that failure is a constant possibility is one of few effective restraints upon behaviour.

    The US government's real downfall was in not allow BofA, Citi, Merrill, AIG, GM, Chrysler--the list goes on--to actually fail. It would have been ugly for a while, but not this convoluted mess we now face.

  8. This is all fine and good about letting Lehman go; the only fly in the ointment is the awkward fact, that LB was a major (the major?) competitor of Goldman Sachs - and the man (certain H. Paulson) who decided not to throw a lifeline to LB was a long-time employee of GS...

  9. Paulson was not merely a former employee of Goldmans. He used to be its head honcho and most probably continues to have a significant shareholding in the company.

  10. Your facts are true but were all those "assets" really assets at all? Credit default swaps, mortgages and derivitrive contracts make up the lions share. They are more accurately called liabilities than assets in my book...

  11. Au contraire, if the whole damn lot of them had gone we'd be worse off now, but better off in five years, and the banks would have learned not to do it again.

    Whereas now, they know they can do it again with impunity. Joe Taxpayer will always ride to the rescue, apparently.