WP: Would Saving Lehman Have Saved Us From the Great Recession?

[SlideAway]

Interesting article gaming out the implications for the US, Europe, and China if Lehman had been bailed out in September 2018.

On Sept. 13, 2008, officials from the Federal Reserve and Treasury Department met with a who’s who of Wall Street to try to figure out a way to save the world.

Lehman Brothers, then the fourth-largest investment bank in the United States, was on the verge of going under and dragging the rest of the financial system down with it — unless the assembled policymakers and masters of the universe figured out a way to save it.

They didn’t, of course, and the result was akin to someone turning the lights out on capitalism. Global stocks, trade and output all fell faster in 2008 than they had in 1929. Policymakers stepped in with trillions of dollars in bailouts, stimulus and money-printing. It was enough to stabilize the system but not our politics. Those took an ugly turn all over the world.

But what if, at that fateful meeting, Lehman had been saved? How would the economy have fared? And, 10 years later, how different would the world’s economies — and politics — be?

...

The tl;dr, he imagines a less severe US recession, a smaller stimulus and paired down Dodd-Frank, but a sharper Eurozone crisis in 2010-11, a Grexit, and a smaller Chinese stimulus resulting in a wider trade imbalance and greater Western tension with China earlier on.

 

[Carl Schwamberger]

The problems ran so deep across the banks and others that bailing out Lehman was repairing one bridge column, while the others are collapsing.

I have been in the construction industry for most of my working life. That had been in trouble for a decade & gone off the rails around 2003. Yet the finance industry had continued to shovel money after bad investments. Sort of ignoring a couple of the bridge columns had already fallen into the river. This ignoring that real estate was grossly overpriced, that major construction companies like Bezer Homes or CP Morgan, were walking dead, that the owners across the board were over leveraged whatever their equity, were all part of the virtue of ignorance attitude that so dominates these days.