Sparring Opinions: Saving Lehman Brothers

This week marks the one year anniversary of the collapse of the financial giant Lehman Brothers, whose bankruptcy triggered panic in global markets last fall. In today's Sparring Opinions we're comparing two op-eds that offer different views on whether a taxpayer bailout of the firm would have helped stem the financial crisis.

In Forbes Magazine, NYU business professor Roy C. Smith argues unequivocally that the U.S. government should have saved Lehman Brothers:

"The Fed didn't have authority to take Lehman's assets as collateral, it said, and the Treasury strongly concurred, believing that markets had prepared themselves for Lehman's demise. But they hadn't. ... Letting Lehman go was a mistake. The event triggered a three-month market panic the likes of which no one living can remember, shutting down the interbank credit market and the commercial paper market and causing an instant run on money-market funds, and on the debt and stock prices of other large banks and investment banks."

Economist Joseph Stiglitz dismisses Smith's view as "sheer nonsense." In an op-ed in the Guardian, Stiglitz writes that while the U.S. government could have found a middle-ground between "abandonment or bailout," financial crisis was inevitable:

"Lehmans was not a cause but a consequence: a consequence of flawed lending practices, and of inadequate oversight by regulators. ... The Lehmans episode demonstrates that incompetence has a price. That there would be serious problems in our financial institutions was apparent since early 2007, with the bursting of the bubble. Self-deception led those who had allowed the bubble to develop, who had looked the other way as bad lending practices became routine, to think that the problems were niche or temporary."

Which story do you find most insightful? Make your voice heard -- add your review to these two opinions:

• Lehman's Lesson - Forbes

• For all Obama's talk of overhaul, the U.S. has failed to wind in Wall Street - The Guardian

-- Derek Hawkins

Comments

[win my ex girlfriend back]

I felt these changes as they were going as I was in the lending industry for one of our major banks at the time. I remember doing plenty of loans using their products that probably shouldnt have got done. With that said they were more strict than a lot of the other non prime lending companies.