Monday, September 15, 2008
The important point in Gapper's article on Lehman Brothers is this: 'By doing so he (Dick Fuld) would tacitly have admitted that Lehman was worth merely the sum of its parts. In other words, all the effort he had invested over his career in making Lehman a match to Goldman Sachs, Morgan Stanley and Merrill Lynch would have come to naught.' Gapper is, perhaps wisely, keeping a very narrow focus here. He is writing about Lehman as a specific failure. Fair enough, but, in view of the fact, also overnight, that Merrill Lynch was sold to the Bank of America, AIG begged for support and everybody is now waiting for the next big failure, Fuld's incompetence is merely an acute form of the chronic incompetence of the financial system as a whole. City boosters like Guido claim this is all part of the same old game. It isn't. Lehman lost everything it ever made - except salaries and bonuses - but all the banks have now lost the investment profits they made in recent years. They have done so knowing they are, in practical terms, one big bank and, as such, their risks will be underwritten by governments. This market wasn't free, it was ineptly rigged. Governments will now have to use regulation to make banks as boring and safe as possible. If they want ultimate state support - and they always do when the chips are down - then that is the price they must pay.
Posted by Bryan Appleyard at 9:02 am