Cory Leonard

Lehman Brothers, We Heard You Were Dead –

In politics on October 7, 2012 at 5:33 am

Tales of the Zombie bank:

The main lesson of Lehman’s collapse is that the response to a troubled financial system is, ultimately, determined not by technical regulation, but by politics. The F.D.I.C. can use its new powers only after receiving the consent of the Treasury secretary. And its new powers pertain only to those banks deemed systematically important, a designation determined by political appointees. So while the F.D.I.C. is working to formalize the rules governing its new powers, investment-bank lobbying has grown by nearly 60 percent since the crisis began. Bankers learned that they need to be closer than ever to politicians.

Kenneth Rogoff, who co-wrote the pre-eminent history of financial crises, “This Time Is Different,” told me that crises don’t end because new laws are enacted and politicians can be trusted again. In 1945, “the financial markets were devastated,” he said. “State and local governments had defaulted on everything. Lending had shrunk.” Somehow, though, the economy recovered and experienced nearly 30 years of robust growth. Confidence comes, he said, when “enough time passes so everyone forgets there was ever a problem.” I was thinking about this as I walked through the new Lehman headquarters and overheard one employee brag about a real estate deal he had just made. (After all, the advisory firm Alvarez & Marsal could earn more than $600 million from winding down Lehman.) But the larger fact is that Lehman, which once seemed essential to the economy, is slowly disappearing. That few even know that this is happening in the Time & Life Building suggests that our confidence may not be far away.

via Lehman Brothers, We Heard You Were Dead –

via Lehman Brothers, We Heard You Were Dead –


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