Lehman Brothers Failure Questions
Do you believe that the U.S. government treated different financial institutions differently during the crisis? Was that appropriate?
Whether the government did little to address the problems concerning financial institutions during the crisis is a tough issue to discuss. Much criticism raised around this topic: on one hand, a gradual deregulation process and an excess of risk taking on the behalf of financiers finally spiraled the situation out of control. Having taken part to the events occurring in this scenario only in a few occasions, and as the ultimate guarantee of rescue, the FED,in conjunction with FDIC and the Office of the Comptroller of the Currency, made decisions aimed to save those institutions, for instance AIG, Fannie Mae and Freddie Mac, whose failure would have had a greater impact on financial system’s wealth and perspectives of recovering from the crisis were reliable. This was the main reason for declining any proposal of action in favor of Lehman. Some argued that the company’s bankruptcy was an intentional choice rather than a “genuine error”, aimed to induce the restoration of higher degrees of financial discipline. However, had the government disposed a plan in favor of Lehman Brothers, this would have prevented investors from losing faith towards financial institutions, the financial system from freezing and economy from carrying the weight of the crisis Notwithstanding, further attempts to save Lehman Brothers did not came to completion for several reasons, not only due to Government stillness, but the giving out of other financial actors i.e. Bank of America and Barclays. In an ultimate analysis is thus important to consider that the “unfair” practices were not carried on by the sole Government, but by all financial institutions acting in the system as a whole: every actor placed a risky bet, whose consequences seem difficult to be addressed to just one responsible.
Do you think that the U.S. government should have allowed Lehman
Whether the government did little to address the problems concerning financial institutions during the crisis is a tough issue to discuss. Much criticism raised around this topic: on one hand, a gradual deregulation process and an excess of risk taking on the behalf of financiers finally spiraled the situation out of control. Having taken part to the events occurring in this scenario only in a few occasions, and as the ultimate guarantee of rescue, the FED,in conjunction with FDIC and the Office of the Comptroller of the Currency, made decisions aimed to save those institutions, for instance AIG, Fannie Mae and Freddie Mac, whose failure would have had a greater impact on financial system’s wealth and perspectives of recovering from the crisis were reliable. This was the main reason for declining any proposal of action in favor of Lehman. Some argued that the company’s bankruptcy was an intentional choice rather than a “genuine error”, aimed to induce the restoration of higher degrees of financial discipline. However, had the government disposed a plan in favor of Lehman Brothers, this would have prevented investors from losing faith towards financial institutions, the financial system from freezing and economy from carrying the weight of the crisis Notwithstanding, further attempts to save Lehman Brothers did not came to completion for several reasons, not only due to Government stillness, but the giving out of other financial actors i.e. Bank of America and Barclays. In an ultimate analysis is thus important to consider that the “unfair” practices were not carried on by the sole Government, but by all financial institutions acting in the system as a whole: every actor placed a risky bet, whose consequences seem difficult to be addressed to just one responsible.
Do you think that the U.S. government should have allowed Lehman
References: James K Glassman ,The Hazard Of Moral Hazard. Commentary. New York: Sep 2009. Vol. 128, Iss. 2; Pg. 28, 5 Pgs James Surowiecki ,Hazardous Materials; The Financial Page. The New Yorker. New York: Feb 9, 2009. Vol. 85, Iss. 1; Pg. 40 John M. Berry, When Too Big To Fail Gets Too Chaotic To Manage,The Fiscal Times, May 10, 2010