What Lehman’s Collapse Would Have Wrought

Today’s must read MSM article is a page 1 article in WSJ on the impact of Lehman’s collapse on the global financial markets:

"Two weeks ago, Wall Street titans and the government’s most powerful economic stewards made a fateful choice: Rather than propping up another failing financial institution, they let 158-year-old Lehman Brothers Holdings Inc. collapse.

Now, the consequences of that decision look more dire than almost anyone imagined.

Lehman’s bankruptcy filing in the early hours of Monday, Sept. 15, sparked a chain reaction that sent credit markets into disarray. It accelerated the downward spiral of giant U.S. insurer American International Group Inc. and precipitated losses for everyone from Norwegian pensioners to investors in the Reserve Primary Fund, a U.S. money-market mutual fund that was supposed to be as safe as cash. Within days, the chaos enveloped even Wall Street pillars Goldman Sachs Group Inc. and Morgan Stanley. Alarmed U.S. officials rushed to unveil a more systemic solution to the crisis, leading to Sunday’s agreement with congressional leaders on a $700 billion financial-markets bailout plan.

The genesis and aftermath of Lehman’s downfall illustrate the difficult position policy makers are in as they grapple with a deepening financial crisis. They don’t want to be seen as too willing to step in and save financial institutions that got into trouble by taking big risks. But in an age where markets, banks and investors are linked through a web of complex and opaque financial relationships, the pain of letting a large institution go has proved almost overwhelming."

Fascinating stuff . . .

Source:
Lehman’s Demise Triggered Cash Crunch Around Globe
Decision to Let Firm Fail Marked a Turning Point in Crisis
CARRICK MOLLENKAMP and MARK WHITEHOUSE in London, JON HILSENRATH in Washington and IANTHE JEANNE DUGAN in New York
WSJ, SEPTEMBER 29, 2008
http://online.wsj.com/article/SB122266132599384845.html

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