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Lehman collapse: One year on

Jeremy Hillman Jeremy Hillman | 08:52 UK time, Monday, 7 September 2009

Today we're launching several weeks of coverage across radio, television and online to coincide with the one-year anniversary of the collapse of Lehman Brothers, the largest financial bankruptcy in US history.

Aftershock indexThe sudden and shocking collapse of one of the most well-known financial institutions in the world marked a seminal moment and triggered a dramatic meltdown in global finance which has left the world a different place from the one it was 12 months ago. Its aftershocks have had implications for all of us.

After Lehman's, the global economy ceased to expand for the first time in 60 years with poor countries severely hit by the fall in commodity prices and remittances. The crisis is estimated to have thrown an additional 100 million people into absolute poverty (earning less than a dollar a day).

In the UK household, wealth has fallen by around £1.1 trillion - or around £40,000 per household. Government debt is expected to reach £1 trillion in a few years, an increase of £600 billion, and unemployment is expected to top three million, or 10% of the workforce. The crisis has also led to unprecedented international co-operation at the G20 summit in London and later this month in Pittsburgh, which could lead to stronger regulation of the world's financial markets, including bankers' bonuses.

So what are we hoping to achieve in our coverage over the next few days and weeks? Firstly, with the perspective of a little time, we will ask what caused the crash and whether it's possible to design a system to prevent a future repeat. We will look at the current state of the global economy, at whether the crisis has fundamentally altered the power balance within that economy away from the US. And we'll also ask whether we are now in a recovery and what that recovery will look like.

A specially created area on our site will aggregate all the best of the journalism we are creating. There will be opportunities for you to participate in the discussion and debates, and you'll hear from our most authoritative voices including business editor Robert Peston and economics editor Stephanie Flanders, who will be speaking to all the main players from the world of business and finance. There may be no easy answers but we will do our best to ask the difficult questions.

Comments

  • Comment number 1.

    I'm not convinced we have the eyes to see yet. And I'm not persuaded all the whatsits are out of the woodpile; yet.

    But I applaud your enterprise and look forward to the 'pips squeaking', that is if you press them hard enough. Break a leg. Or two.

  • Comment number 2.

    Where did all the bail out money go? Just AIG and Goldman Sacs? What is the logic in that?!

  • Comment number 3.

    Why do you always attribute my comments to "you" and not my nickname "walrus"?

    It is getting tiresome.

  • Comment number 4.

    One year on….. I don’t think so. The financial crisis has actually been going on for two years starting in Aug/Sept 2007. Yes Lehman,s collapsed a year ago but only after a year of problems in financial markets. Saying its only a year on will lead people to think that the problems haven’t been around longer.

    My previous employer, a mortgage company made a 5th of there workforce redundant in September 2007 and then continued to lay people off over the next two years and they are not the only ones. I was lucky to be able to keep my job with them until March this year and have found another role quickly but some of my former colleagues have had to leave the industry completely.

    Its unlikely that lending will return to previous levels given that so much capacity has been taken out of the market and now the big six lenders have a virtual cartel in place thanks to HM treasury and the FSA!

  • Comment number 5.

    Lawrence G McDonald, in his book "A Colossal Failure of Common Sense" describes Lehman as "rotten at the head" and "24,992 people striving hard, making money, and about eight guys losing it."

    Lehman epitomises the money markets in the last thirty odd years; it didn't matter how you made money as long as you made it. Superficial, expedient, immoral, and ultimately destructive.

    I am unsure as to how anyone can put a "spin" on this story and call it "intelligent" journalism, unless, of course, they are in denial. McDonald may praise the efforts of around 25000 people in making money (after all that is what he understands), but doesn't the whole financial mess call into question the fundamental precepts of capitalism. It isn't much good building a city out of bricks of money if the foundations are being removed as fast as the buildings climb.

  • Comment number 6.

    It's only attributed to you when you are signed in Walrus. If you care that much, sign out, then have a look then.

    Course, I'm waiting for someone to create the username you to really confuse people.

  • Comment number 7.

    Thanks for that, DuellistOrigins. I usually am signed in.
    But i will follow your suggestion and sign out and in again.
    It's only important in that the system is not working - well for me - and I would like to know how it computes 'me' as 'you'.

    Very best wishes.

  • Comment number 8.

    Jeremy Hillmann reports the average UK household is £40,000 worse off. I haven't personally noticed this at present, so can any of you bright economists out there tell me how they calculate this figure? Is it gone from my pension pot, my share of the national debt, or what?

  • Comment number 9.

    It wasn't just the sub-primne lending that caused the problems and Lehmans showed more than anything how banks had broken all accepted procedures in keeping to a leveage on lending to funding that bore a semblence to reality.

    For this you have to go back still further to see how Greenspan kept interst rates too low for way too long and how regulators have shown most notably the FSA that whilst they love tick boxes they don't know how to interpret the answers they are given.

    Yes we can get rid of governments through the natural political process but with regulators they appear to feel they can continue ad infinitum spewing out ever more demented and futile rules that serve no purpose but keep them busy.

    The more we hear from the FSA now the more we have come to see that the lunatics are undeniably running the asylum.

    When is someone going to realise in these 'esteemed' establishments that talk is cheap and they should be employing those who actually understanmd what goes on and how it can go wrong not theoreticians who deliver rhetoric almost daily, using good lunches for journalists to show what a grand job they are doing and how misunderstood they are.

    If the FSA can't explain what it is seeking to do on, and what it is doing then it must be closed down and more importantly, its senior officers must be subject to performance criteria that requires success based on real delivery not perfomance that a dead sheep would pass on.

    These are the areas you need to be looking at and commenting on, because these are the core problems which are as much in opration today as they were 2 years ago.

    To assume the muppets who were running the show that sank so classically are still running the same show tells us all we have not learned anything. Did the designer of the Titanic get other work once it sank?

    There are also other areas you neded to look at most noticeably masons and their links in society, where brothers defend brothers however indefensible. they are rampant in numerous professions and there must be a law that forces open declarations to be made by all staff on whether they belong to any mason lodges.

    A prime example is the FSA, so we know what lodge links there are between the regulatoe and the regulated?

    Business schools have been spewing out the same theories with little or no adaptions to present day thinking, asset classes are still viewed by Actuaries as they were 30 years ago.

    Times change and the problem is that todays participants never read history and those who didcant appear to apply it to the problems of today because they don't understand how todays markets really work.

    Please think about these areas as well Jeremy as they are key to squaring the circle.

    I hope others will contribute as well as so helping Peston and Stephens as they seem to be falling into the trap of seeking contributions from the very people who in some degree unwttingly created teh mess we are still in.

  • Comment number 10.

    The problem with the market crisis, is that the financial market as it is should not exist at all.

    It is an absurd to wish to make money betting on the raise of the shares prices.

    If you want to make money from your savings the bank should pay you a decent interest.

    Instead the bank pays almost nothing to the people who save money and deposit in the bank.

    Although that when you ask the bank to lend you money you have to pay very high interest to the bank.

    The difference bettween the two situations results inn huge profits to the bankers.

    More, the savers expecting for a better return for their savings put their money into the stock market and derivatives.

    The result is that share prices increase above the real value. Then it crashes, and the value of their hard earned savings is gone.

    This way of savings handling is absurd and imoral. It should end forever.

    People savings money shouldn´t be treated by banks as a casino.

    Banks should pay fair interests to the people who save money, not rob them twice. Once with low interests, twice with the stock market gambling casino.

    Don´t let the banks fool yourselves again.

    End the stock market once for all.

    Demand fair interests on your savings.

    Their money is your savings. You deserve a better share from their profits.

    Again. Don´t let the banks fool you.






  • Comment number 11.

    I've noticed that just about everyone including the average joe has an opinion about the issue of this "financial crisis"

    I believe that too much energy is allocated towards looking at the smoke rather than the actual fire that started this problem. A recent interview with the former Head of the Us fed reserve sheds a very important link to this topical issue.

    I agree with him fully when he says that another financial crisis will occur owing to the fact that as humans beings in our rational way of looking at a situation that is percieved as being "favourable", we will always have an inquenchable desire to manipulate these conditions in an excessive manner. As is the case with many Banks, profit no longer is a motive, but rather a lifestyle. A lifestyle that encourages what is now called "excessive risk" behaviour.

    And now we are all faced with the product of these risky behaviour.

    Some would argue that the financial crisis begun in 2007, however,some researchers are lead to believe that the true financial source this crisis begun in 2002 in the Us financial market. The economic climate also remains a vital factor in assessing the propensity for quick recovery, be it on a national or global scale.

    Maybe as students, analyst etc,we can do a brief research about what transpired during the time line 2002-2007......then perhaps a proper foundation can be laid in our attempt towards strengthening the recovery process.

    student:billy2learn

  • Comment number 12.

    This leverage theory and lending more money than you actually have which created this melt down. Which university professor or academic taught these guys this theory? The so called intelligent graduates which implemented this theory in the financial world were just students doing what they have been taught.
    But another weakness in education do not follow theories blindly learn to put your own theories together and make judgements. This shows the inability of people to think in my view. If the professor said jump off a cliff would they do that? Its clear that following theories blindly is dangerous and again theories can be proven wrong!
    I think we have proven that maximizing leverage is not a good idea and we go back to conservative low risk banking policy.

  • Comment number 13.

    #12

    Your comment is sharp; but none of the "foolishness" has or had an economic rule basis, it was simply greed in an under regulated and poorly policed market place. To encourage the economic model advocated by the capitalist moguls of the seventies and eighties the laws and codes of practice were poorly phrased and there were, and still are, hundreds of holes that can be exploited.

    When the energy markets opened up in the UK it was made easy for consumers to switch suppliers, so easy that sharp salespeople in a highly competitive market could make money simply by phoning you up and, regardless of response, make the switch. The watchdogs received hundreds of thousands of complaints before the codes of practice were changed. But what the authorities should have done is report back on the failure of the "open market" policy; that way the "cartel approach" when prices were on an upward climb may not have been possible.

    This points to the toothless nature of the regulatory bodies, an opinion confirmed in contractual exchanges on, for example, railway franchises. When making money (instead of serving customers) becomes the standard by which companies are measured then consumers suffer and will continue to suffer until corporations are reduced to much smaller sizes and made to suffer the consequences of their poor decision making. In reality we need much more than a few collapses, we need wholesale collapses. We also need to mark the anniversary of Lehman as a day when the money markets inflicted as much pain on themselves as they had done on their customers for years.

  • Comment number 14.

    I watched the program about the collapse of Lehman Brothers with great interest. I still wonder where all the money went. It seemed strange that the head of US Finance would call together all the major bankers in the USA to discuss the purchase of Lehman's toxic assets, they failed to agree and the outcome is the bankruptcy of Lehman's. Is it possible that over that same weekend these bankers switched their own toxic assets into Lehmans. The complex structure of the market would make it difficult to determine who owed what to whom if all the major bankers were in agreement. The bankruptcy of Lehmans did not bring the own system down it seems from memory to have been a turning point.

  • Comment number 15.

    Thanks BBC for the Lehman documentary however... there is always more that could be said. For instance, how about this?

    http://stateofthedivision.blogspot.com/2008/12/bush-relation-lands-on-top-of-lehmans.html

    George W. Bush's cousin and brother came out in high cotton from Lehman Brothers' bankruptcy. Cousin George Herbert Walker will be CEO of an independent Neuberger Investment Management. The firm manages $160 billion in assets. Brother Jeb Bush advises Lehman's private equity funds, included in the Neuberger spin off. Jeb is on a winning streak. His name was mentioned as a possible Senate candidate and he landed a spot on the Rayonier Board of Directors. That's in addition to his board seats at Tenet Healthcare and CNL Bankshares. Lehman's bankruptcy was a precipitating event for the mid-September credit meltdown. Many financial experts call it a bad move, but it seemed to benefit the Bush boys. George W. avoided egg from saving his near relations' firm. George Herbert Walker and Jeb Bush can get a chunk of $2 billion in segregated bonus money and own part of a stand alone Neuberger...


    Links to NY Times articles at that blog.

  • Comment number 16.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 17.

    Leverage is fine when times are good. we are all happy if the bankers are making money for us. We just hate them when it goes wrong (and they do well out of it).
    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 18.

    The financial meltdown occurred because capitalism literally went bankrupt because much of the private sector was unprofitable despite the unchallenged neoliberal pro business policies by both New Labour and Tory governments over the last thirty odd years.

    The excessive borrowing and lending by business and banks respectively, and the subsequent massive injections of public money into the system are all rubber stamped by 'free market' politicians and maintsream financial commentators because it deters the public from seeing the state of the economy in its true light!

  • Comment number 19.

    The Bush clan are doing what they do best manipulate the markets and make sure that the WASPs stay in place the 400 the have mores as George called them he did this before he became Mr President the drama about the banks is a cover up its about a few banks having the power what it did was show you the mad who run it all dead eyed gamblers in fact I think David Ike is right about the lizard men many of them looked from other planets but Bush did this along with Cheney and Rumsfeld. The Brits knew about it both Brown and Blair and Mandy like they knew about Rovers these men were asset strippers and that is what they did, do they car about those they put out of work and their families NO never did and never will the banks are casinos and the we pay for them to play with our money which is why they want us to have debit cards so that they can control the flow of money and you do not know about it and so will end up with no money like pounds shilling and pence but just plastic that they can close when they want and you are left legless.

    It has not finished Jeb Bush is named after Obhama the Bilburge group chose them both and have chosen Jeb all ready. So do not keep money in the bank they always get the interest of you that is why they keep your money if people stopped being helpless and looked at the fire and not the smoke and mirrors they could control what happened to them, but they want something for nothing of the few who rule the earth without knowing about them who bank rolled this my money is on Rothschild still everyday twice a day setting the gold standard and the Feral Bank is not a bank and should be closed down.

  • Comment number 20.

    The dealing of the bailout money was ridiculous

  • Comment number 21.

    'The Self destructive tendency of modern capitalism begins with the large
    Corporation’ Galbraith(1992) as cited by Royle(2000).

    The above statement of Galbraith is worth noting in the present crisis. Whether it is investment bank like Lehman Brothers or other MNEs like GM(the industrial sector victim of such huge financial crisis), isn't now the time to contemplate on reducing the huge size of corporate in any sector?

    I think the very large size of any MNE is at the core of the problem.
    This is because, with different rules and regulations in different markets(countries) in an integrated economy, allow the high risk taking behaviour among the top executives runnning these MNEe go unchecked and unnoticed in some cases.

    No matter how much vehemently top professionals at such MNEe may be claiming about best corporate practices or corporate governance and various systems in place to monitor frauds, the fact of the matter is so much of corporate misgovernance happens in the name of best corporate governance!!

    India's Satyam Computers Services and recent MG Rover case in the UK are classic examples of recent Corporate Misgovernance.

    All G20 Governments should specifically monitor the activities of the large MNEs operating in their countries and some kind of private-public partnership mechanism in a trasparent manner should be established to monitor the kind of unreasonable risks such ''few behaviours'' may take, afflicting billions across the nations!

    3 points come to my mind.

    1. Business Schools should produce not only good businessmen and women but good humans also!
    2. Auditing firms should be audited precisely by various governments in an integrated manner as in number of cases top executives of auditing firms auditing such huge MNEs are also having hand in glove with top executives of those MNEs.
    3. Mr.Alan Greenspan said it is human nature which is at the core of such problem and it will happen again; may be in a different manner.

    And to stop that happening, sharing of information and collaborative regulations are needed between the governments irrespective of their short term political gains within their respective countries.
    Activities of top executives of MNEs should be monitored if not controlled at least!


  • Comment number 22.

    If you are going to cover what happened in the UK housing market please read our Press Release at:

    http://www.property-match.co.uk/match2/Press_Release.html

    It explains why house prices and confidence collapsed in the aftermath and what should be done to stop this from ever happening again?

  • Comment number 23.

    @21, irfanpandor, I agree. If it is good for ecology to have diverse ecosystems then surely it is good for businesses (hey, and governments)not to be so big that they "cannot fail".

    No one industry should dominate a country or a market etc

    The way we are currently going is a one world government and an all-embracing corporation and a single media organisation... And they would probably all be controlled by one man!

    I don't know about you but that doesn't seem good to me...

  • Comment number 24.

    The question no one seems able to answer is what would it have cost to save Lehman Bros and would it have been less than the $11 trillion that's been spent since? Saving Lehmans many not have prevented some other failures, but surely it would have been less painful than the present agony.

  • Comment number 25.

    Lehnan Bros. a defining moment, BUT DID YOU KNOW THAT YOU HAVE ON TAP SOMEONE WHO WAS IN ON THE ACTION none ohter than Ms Ruth Lee (not sure of the spelling - she is always popping up on the BBC (has she got a contract?) extolling the virtues of the market . I remember her as spokesperson for the Institute of Directors comparing bosses to football players. The only comment I remember
    her making was that "some bankers have behaved badly" WHAT!!!!!

    According to Question Time she was introduced as having worked for Lehman Bros. !!!!! WHAT! as Peter Kay or Lenny Henry would say, then this was actually mentioned in passing WHAT !!!!So much for the BBC's nose for a story!!

    So come on BBC doorstep her; asky her what she did at Lehman's ? Or as usuall will you bottle it. For example Mr Peston asking Victor Blank about whether he prefers business or cricket ! Not asking Myner's about his tax haven operations .

  • Comment number 26.

    smilingavidreader (sorry forgot the name)

    Ref: Ms Ruth Lea
    Stop press I have found Ms Lea; she works at Arbuthnot investors and
    she did work for Lehamans !! Does Mr Peston know about this !! I will contact her aswell as you ok ?
    I wll also send a message to Mark Thomas- ace reporter!
    Look forward to this also being put on the blog. Did you know she went to the same school as my step-daughter, Lymm Grammar wow !

  • Comment number 27.

    It is really interesting that you are covering the news of one-year anniversary of the collapse of Lehman Brothers after the collapse.This is what triggered the recession.But would it not be better to have look at such institutions before they collapse or face crises?Only such news is beneficial to the common men and to the country.
    Lip Stain

    Lip Reduction





  • Comment number 28.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 29.

    Ok - Explain this one to me please (apologies if wrongly posted, I thought this seemed on topic):

    BBC reports "Bank crisis lessons 'not learned'" "The Institute for Public Policy Research (IPPR) says the rapid return to the City's bonus culture shows that real reform has been "very limited"."

    So, probably, unlike your reporter, I did actually waste my time and decided to read the report - which I guess is somehow passable given its basic statistics and fancy use of excel graphics (just don't show it to an academic!) - however, NOWHERE, in the report do I see any EVIDENCE that city bankers have not learned their lesson? Some vague guesswork about Goldman Sachs bonuses and suddenly nobody learned their lesson?

    Gentlemen/Ladies PLEASE. Stop sensationalising random reports. Read more than the first few sentences of the synopsis written by some dude who managed to copy and paste some basic stats together and state the obvious all along, whilst ending on conclusions which make me wonder who is paying for this...

    I agree, news is news, this is an issue, but seriously, don't shout political slogans from roof when there is no evidence to back up the arguments. A lot of economics is boring and proofing something in economics is usually even more boring and requires a bit more work than the report quoted in the article (IPPR - How To Make Capitalism Better).

  • Comment number 30.

    Lehman's was cut away from the pack so that all eyes would be on them and not on other banks then the Fed could say see how powerful I am and like Barrings I can pull you all in-line, As George Walk cousin of George Warmonger Bush . I can also show you how I can take London down with me see been playing craps for the last couple of years with money that is not mine and now I am keeping it and all those cheap house you sold to people who could not pay I will keep them and then sell them again and do it again and no one can stop me, The Fed is the trouble as it is not a true bank, and the man who sets the gold standards I will not say him name.

  • Comment number 31.

    Whatever the position the economy is now, I know i still have to work. And I am glad that I have a job!

  • Comment number 32.

    It doesn’t surprise me that Prime Minister Brown had to snatch a brief word with President Obama in the kitchens at the UN, after the latter apparently snubbed his request for a private meeting. The Americans have a right to be furious over the release of the convicted Libyan ‘Lockerbie’ Bomber, and it has certainly affected the ‘Special Relationship’. But one must also question whether the G20 leaders are still listening to Mr. Brown’s advice on the global economic crisis. This week the Germans have criticized Britain for blocking tougher international regulations, and the French are not happy with us either.

    The Americans may not be willing to impose tougher regulations, but at least they are starting to investigate what went wrong, and more importantly, they are taking draconian measures to punish those who are convicted of fraud and other crimes, for example Bernard Madoff, Lord Black, Sir Alan Stanford and many others. Britain has so far done nothing.

    Earlier this month, it was revealed that the US Securities and Exchange Commission had investigated Mr. Bernard Madoff six times over the past 15 years, but had failed to uncover any evidence of fraud. Paradoxically, it was admitted that Mr. Madoff was at one stage even being considered, as a suitable contender to head the SEC, so good was his reputation in the financial services industry. None of this surprises me, for I have also been unable to persuade the FSA to investigate properly the suspected involvement of the British investment company Henderson Group plc (formerly Towry Law plc) in a sophisticated fraud that resulted in the collapse of the Hedge Fund Global Diversified Trading and the loss of US $ 51.6 million of investor’s money. The FSA apparently lost my complaint, or more likely they threw it away.

    Much has been said in recent months regarding the causes of the present global recession. The general public believe that the main reasons for this crisis are greed and irresponsibility by banks and investment companies, deregulation and lack of oversight. Unfortunately, this combination of factors has created a climate of impunity in which some companies operating internationally are able to exploit the absence of proper regulatory supervision, finding loopholes in the system to circumvent the regulations for their own advantage. It has left investors in a perilous situation, unprotected and vulnerable. I frankly doubt whether the markets will fully recover until investors regain their confidence, and this won’t happen until they feel properly protected. The Chancellor of the Exchequer talks about the need to regulate Hedge funds operating in tax havens offshore, but it is all talk and no action.

    If the regulators had done their job properly, the banks and investment companies would have acted more prudently, exercising due diligence and fiduciary responsibility. Think twice before you invest in Britain or Hong Kong.

 

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