How the collapse of Lehman Brothers pushed capitalism to the brink

Guardian (London) ^ | 4 September 2009 | Andrew Clark

[lowbuck]

The game was up. Gathered in a first-floor conference room at the Federal Reserve Bank of New York, a huddle of senior Lehman Brothers executives realised that their firm was bust. A last-ditch effort to get Barclays to buy the 185-year-old Wall Street bank had failed. The British were not coming. Bankruptcy was the only card left to play.

[lowbuck]

A bit long, but, worth the read. Gives a good rehash of the hectic conditions when it seemed the market was going to melt down entirely. Enjoy.

[sourcery]

The authors/editors of the article clearly deeply misunderstand the correct meaning of the term “capitalism.” The failure of banks in a central-bank controlled, fiat-money system have nothing to do with capitalsim. At all.

[LomanBill]

Do NyLons float like Tea when they get a run on them?

[what's up]

Thanks. Excellent article.

This answers some questions I had about the Primary Reserve Fund and its trigger which caused Paulson-Bernanke to go to Congress.

[capydick]

It became clear that the Bush administration's laissez-faire attitude in allowing a major financial institution to collapse into an disorderly bankruptcy had been catastrophic.

Other's would call that free market capitalism.

the bank had taken positions of an astonishing $780bn in mortgages, stocks, bonds, oil, gold, derivatives and other investments. It had leveraged its books by an astonishing factor of 44 and it had opted to take a particularly huge punt on America's teetering home loans market.

Therein lies the problem. With those huge salaries comes a fiduciary responsibility to make sure the company's leverage does not exceed it's ability to stay in business. Fuld did not do that.

[Huck]

History repeats itself...

"What we confront is not the failure of capitalism, but simply the failure of democracy. Capitalism has really been responsible for all the progress of the modern age. Better than any other system ever devised, it provides leisure for large numbers of superior men, and so fosters the arts and sciences. No other system ever heard of is so beneficial to invention. Its fundamental desire for gain may be far from glorious per se, but it at least furthers improvement in all the departments of life. We owe to it every innovation that makes life secure and comfortable.

Unfortunately, like any other human institution ( for example, the Holy Church), capitalism tends to run amuck when it is not restrained, and democracy provides inadequate means of keeping it in order. There is never any surety that democracy will throw up leaders competent to discern the true dangers of capitalism and able to remedy them in a prudent and rational manner. Thus we have vacillated between letting it run wild and trying to ruin it. Both courses are hazardous and ineffective, and it is hard to say which is the more so."

-H.L. Mencken

[capydick]

So true! And - one could argue - doesnt it all come down to the character of the people which make up the nation - which is the system?

[Huck]

doesnt it all come down to the character of the people

Without question. It's no coincidence that consumer debt is just as bad as gubmint debt, which is just as bad as corporate debt. We are the enemy, I'm afraid. We clearly as a people have forgotten the old wisdom. That's why we're having to go through all this. It won't stop until the lesson has been learned. The laws of Nature always win in the end.

[Paradox]

Capitalism is not a system. Capitalism, given human freedom and justice, is like Gravity, it just is. It is always there. All you can do is screw it up. Capitalism is natural and self correcting, always seeking level.

[capydick]

The laws of Nature always win in the end.

Absolutely right.

[Liz]

Lehman's Fuld should be in jail---he was the brains behind some of these cockamamie finanical instruments---like credit default swaps--sold all over the world to unsuspecting buyers who have lost a bundle.

======================================

ONE EXAMPLE---LEHMAN'S BANKRUPTCY COST FLORIDA BIG BUCKS

(1) Florida stands to lose $1 billion from Lehman Brothers' bankruptcy.

(2) Lehman Bros managed Fla's public assets, sold securities, underwrote bond deals and handled residential and commercial MORTGAGES.

(3) Local Fla governments are stuck with about $556 million in tainted securities that they can't redeem.

(4) More than $440 million disappeared from the Fla pension fund.

(5) Counties, cities and school districts face a loss of more than $300 million for roads, sewers and schools.

(6) Fla has $290 million less to pay for everything from hurricane claims to health care, community colleges and care for infants with disabilities.

(7) The biggest casualty of Lehman is Florida's giant public pension fund. It took a $230 million hit on Lehman stocks and bonds.

(8) The pension fund holds another $53 million in Lehman bonds that have lost most of their value.

(9) The pension fund has $323 million tied up in tarnished MORTGAGE-RELATED securities purchased from Lehman.

(10) If the Fla pension fund today sold the MORTGAGE-RELATED securities purchased from Lehman, the pension fund would lose about $188 million more.