Who Knew?

It’s been a year since Lehman Brothers, that age-old, proud Wall Street institution was destroyed.  Hmm.  Well not quite.  The Lehman Brothers that went under was created in 1994, making it a venerable 15-year old institution.  The original Lehman was acquired by American Express’s Shearson unit in 1984.  Shearson Lehman (Hutton) was a far cry from the powerful institution Lehman had once been.  Amex and Shearson ran the show.  Shearson later bought what was left of EF Hutton after it collapsed in the wake of the 1987 crash, making it an amalgam of several prior firms owned by a large diversified corporation.  It’s a testament to the new Lehman, however, that it was able to become such a significant player over that 15-year period.  Well, 15-minus-one year period.  It’s an interesting history.  Who knew things would get so bad…

Martin Wolf has a typically insightful essay in today’s FT.  (here without registration, from an ironic source).  It is well worth a read.  Here’s a taste:

“Since large financial institutions are most likely to fail during a crisis, this amounted to an open-ended government guarantee. What makes the decision quite unbearable is that it was, in my view, also correct. The risk of a cascading failure of the good, the bad and the ugly among financial institutions was apparent. Given what had happened after Lehman’s failure, only fools would have run this experiment. We were not that foolish.”

He identifies three key mistakes we must not make, which you will have to read in his essay, but here’s his powerful close:

“Letting Lehman go was not our biggest mistake. That was letting the economy and financial system become so vulnerable. Equally, the past year has restored neither the financial system nor the economy to health. We have avoided the worst. That is good. It is not enough.”

The Cowboy began stewing on the crisis in late 2006, started speaking about it publicly during a meeting on March 30, 2007, and distributed the following draft presentation on August 3, 2007:

View this document on Scribd

Who knew?

The Cowboy.

And he wasn’t alone.

Martin Wolf is concerned that we haven’t fixed the system.

And he’s not alone.

[Via http://diaghilevcowboy.wordpress.com]