Lessons From the Lehman Debacle- 1 Year On
With the benefit of hindsight, it is easy for critics to argue that the financial regulators should not have let it fail.
However, the Federal Reserve has just allowed Bear Stearns to be sold to JP Morgan Chase in March after trying to provide an emergency loan to it to try to avert a collapse of the company. The relief effort triggered doubts in other financial companies of Bear Stearns ability to repay its debts and obligations and as the crisis in confidence hit the company, the loan became of little help to it.
The Chairman of the Federal Reserve, Ben Bernanke, perhaps stung by the criticism received over the bailout given to Bear Stearns by the government, later choose not to intervene as heavily in helping to prop up Lehman Brothers. It later emerged that he did not have the authority to make a big bridging loan to Lehman Brothers.
However, this failure was also what government officials thought will force all financial institutions to stop dilly dallying around and adjust their risk taking. Like taking in more collaterals and money.
It is easy now to criticize Ben Bernanke, Hank Paulson and Tim Geithner. They should have done better to protect the money market fund which basically collapsed after Lehman Brothers went bankrupt. And the money market fund was supposedly one of the safest money instruments around.
It also caused the leaders of financial titans to shit in their pants. When Tim Geithner received a call from one of them who was quavering on the phone, he told him “Don’t call anyone else. If anyone hears your voice, you’ll scare the shit out of them.”
I remembered being staggered at the scale of the bailout requested by Ben Bernanke. With the benefit of hindsight for this too, I am now glad that he took that gutsy call and bailed out the next financial giants in line at the time, AIG and Citicorp from going under like what happened to Lehman Brothers.
Without the example of the failure of Lehman Brothers, maybe the political will to cough up the US$700 billion TARP money would been absent. It will have meant the failure of AIG or Citicorp with even worse implications on the world financial markets.
Perhaps the final word belongs to the guy who punched the CEO of Lehman Brothers in the face in a gym. A female journalist who watched the CEO, who is paid $300 million over eight years, give testimony in a government committee, said that she would have punched him too after watching his shameless account of his actions.
Perhaps all companies should be forced to put the total sum paid to all its CEOs, CFOs, presidents and top executives etc as a total management expense (including bonuses, options, perks etc) in their annual reports in the P&L statement as a separate item so that investors are clear about how much management is taking.
A good article from MSNBC about 7 Lessons from the Financial Meltdown gives a snappy account of what you can learn from the last two years to become a better investor. Something for the “investors” currently playing in the property market in Singapore to ponder over.
Sources:
2. Eight Days- Article in The New Yorker about the collapse of Lehman Brothers
3. The Battle to Save the American Financial System
4. The Bankruptcy of Lehman Brothers- Wikipedia about Lehman Brothers and impact in Hong Kong- nothing about Singapore’s burnt investors?
Post a Comment