Posted on 09/13/2010 6:43:04 AM PDT by SeekAndFind
It's been two years since Lehman Brothers failed (Sept. 15, 2008), and we still can't conclusively answer this question: What if the government had saved Lehman? Its bankruptcy was pivotal. Until then, deteriorating housing and mortgage markets had triggered what seemed a serious -- but not unprecedented -- recession. Once Lehman failed, the economy went into a frenzied free fall. It's hard not to wonder whether some of the ensuing turmoil could have been avoided.
Consider what happened after Lehman:
-- Credit tightened. Banks wouldn't lend to each other, except at exorbitant interest rates. Rates on high-quality corporate bonds went from 7 percent in August to nearly 10 percent by October.
-- Stocks tanked. After its historical high of more than 14,000 in October 2007, the Dow Jones industrial average was still trading around 11,400 before the bankruptcy. By October, it was about 8,400; by March 2009, 6,600.
-- Consumer spending and business investment (on machinery, computers, buildings) -- together about four-fifths of the economy -- declined sharply. Already-depressed vehicle sales fell a third from August to February.
-- Employment collapsed. Five million payroll jobs disappeared in the eight months following Lehman's collapse. The unemployment rate went from 6.2 percent in September to 9.5 percent in June 2009.
Lehman's failure had dire consequences because it suggested that government had lost control. No one knew which financial institutions would be protected and which wouldn't; AIG soon received a massive loan. Uncertainty rose; panic followed.
(Excerpt) Read more at realclearmarkets.com ...
what if the gov had stayed out of it...????
What if Chuck Schumer hadn’t leaked the AIG information that started the whole domino effect?
My personal preference would have been to let them all go under if they were that stupid and insolvent.
No bailouts for anyone or anything.
Free markets and capitalism also allows entities to go bankrupt,
So the markets would have reacted badly. So what? They would have recovered eventually just like they did after 9/11.
pod. post of the day!!!
If the Sept 2008 panic had been avoided, it is conceivable that McCain would be president — in which case the Second Great Depression, with unemployment rates in the mid 9 percent range, would be firmly hung around the neck of the GOP.
The question was already answered in what the government did in early 2008. They bailed out everyone and everything with a pulse and were rewarded with a giant inflationary bubble. It had two effects: it strangled the real economy with expensive producer inputs and created speculation which rippled through the banks when the bubble popped. A Lehman bailout would have done it all over again and postponed the needed deleveraging and made it worse than it actually was in 2008.
Keep in mind that Lehman was a foreign company with most investments outside the USA. I don’t think the American people would think much of bailing them out when european banks did not.
If they were going to spend this much money on bailouts, anyway, they might as well have saved Lehman. Better still would have been to let the other bad actors fail and the gamblers take their losses. But the gamblers own far too many US Senators to subject themselves to market discipline like the rest of us...
Here’s an interesting question -— WHAT IF GOVERNMENT HAD ALLOWED *ALL* OF THESE COMPANIES TO JUST FAIL?
NO BAILOUTS, NO TAX PAYER SUBSIDIES, etc.
Would the economy be worse off? Would there MORE people laid off and out of jobs ?
Put yourself in Bush and Paulson’s shoes, what would you have done ?
I’d like to hear people’s explanations regarding what they believe should have been done...
Or at least let them take their fair hits by not bailing out the bad AIG contracts.
I would be for just letting the whole group of them fail, no handouts, no bailouts, no taxpayer funded relief, just let them go under or declare bankruptcy.
Sure the markets would have tanked temporarily but the government would still be functioning under Bush. The markets would eventually have corrected themselves and all the bad players would have been dkushed out of the game.
“Life is tough but its even tougher if you’re stupid.” - John Wayne
I agree with you on that... Giving those financial institutions holding bad AIG contracts 100% on the dollar was crazy and clearly a bail-out of the worst speculation on Wall Street (and around the globe). If people wonder how Goldman could be back to making multi-billions per quarter shortly after the meltdown, they should go back and look at this "pay-off".
Yep. Went to foreign banks like UBS, too.
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