Many retrospectives of the year since Lehman’s collapse are focusing on whether we’ve learned any lessons from its loss or whether it’s human nature to create economic bubbles.
But we’re also seeing some revisionist statements about whether Lehman should’ve been bailed out or not. At the time, there was widespread belief that Hank Paulson had made the right move.
But while it wasn’t the cause of the recession, Lehman’s fall sent the markets into freefall, not simply because of the complex web of deals it had with global institutions, but on a human level, because it was considered too big to fail.
Looking back, was Paulson being prudent or politic?
In last week’s BBC documentary on the days preceding its demise, Merrill Lynch’s John Thain — aware that after Lehman, focus might shift to Merrill’s precarious position — is among those who believe Lehman should’ve been saved. Former deputy governor of the Bank of England Sir John Gieve was another who’d expected the US government to offer it a last-minute reprieve.
If Paulson (and his European peers) had known what was to follow, would they (could they) have propped up Lehman? He has since argued (and others in the Beeb documentary support this) that there could’ve been be no bail-out without good assets — why should governments perpetuate the ill that effectively landed Lehman in the soup in the first place?
As for lessons, have we learned so much from Lehman’s — and subsequent — failures? Predictions are already underway for the next bubble — as risk expert Gerald Ashley told BNETUK a little while back, “it’s the human condition”. Former Bear Stearns boss Alan Schwartz sees a ’silver lining’ in the loss of Lehman, saying it forced global regulatory bodies to collaborate and curb financial sector excesses on a worldwide basis.
But bank bonuses have hardly gone away. And credit conditions for certain sectors of business persist — and could worsen, according to predictions. In truth, bail-outs by their very nature discourage financial institutions to pause before taking big risks.
Bailoutnation argues that the “ideal bailout is not a bailout of reckless financiers” — meaning Lehman deserved its fate. But the ideal bailout, surely, is none at all.
What do you think? Should Lehman have been left to sink, or would a bailout have been better?
(Photo: JesperRonn-Jenson, CC2.0)
