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The lessons of Lehman

Robert Peston | 09:08 UK time, Monday, 14 September 2009

Where Broadway ends in New York's financial district is the larger-than life sculpture by Arturo Di Modica of the rampaging Wall Street bull. Every day it draws mobs of tourists, all wanting to be photographed leering at its out-sized bullhood.

Robert with Wall St bull

Which is pretty much how many feel about the denizens of this part of Manhattan. Or to put it another way, few can believe the bull-sized cojones of bankers to be taking fat bonuses again so soon after the collapse of Lehman Brothers triggered the worst financial and economic crisis since the 1930s.

It is the anniversary of the banking calamity that symbolises this age of financial anxiety. And in separate films for Newsnight (to be broadcast tonight) and for BBC World (already being shown) - and also in a special edition of Business Daily for BBC World Service - I've been evaluating the carnage from Lehman's demise and what steps are being taken to protect us when next banks abandon all common sense and lend as though tomorrow never comes.

Lehman's collapse was the trigger of the worst banking crisis the world has experienced for almost 80 years. In fact, as Lord Turner - chairman of the Financial Services Authority - recently told me, it is arguable that the financial crisis was the most severe ever, in that there was almost no hiding place from it anywhere in the world.

But - and this is important - the death of Lehman was not the underlying cause of the deepest global recession since the 1930s.

The cause of the global recession was a banking system that had expanded its lending and investing beyond what was remotely sensible, atop flimsy foundations, which was lethal because of the build-up of unsustainable debts by households and businesses in the US and other economies, including the UK's.

Lehman Bros - a firm not far short of its 160th birthday - was simply one example among many of a bank that had lent far too much relative to its capital resources (its buffer for absorbing losses), that had far too little cash and secure funding to reassure creditors that it could not run out of the readies, and that was too intimately connected in too opaque a way with too many other financial institutions.

This combination of inadequate capital, insufficient liquidity and complex relationships of mutual dependence with other institutions was characteristic too of Royal Bank of Scotland, UBS, AIG, Citigroup, Merrill Lynch, HBOS, and so on.

All were vulnerable to collapse. And the collapse of any one of them would have damaged many other firms of importance to the financial system.

Lehman was a little more unstable than the others - and turned out to be the only one that the authorities would not save.

It's because there were so many other weak banks and financial institutions, that all of those whom I interviewed for the film said the US Treasury made a huge error in allowing Lehman to fail, in not using public money to prop it up.

Here's Sir John Gieve, who at the time was a deputy governor of the Bank of England: "it was clearly a disastrous decision not to save Lehman".

Or Sheila Bair, the US banking insurer and regulator as head of the FDIC: "sure, it was a mistake".

Or Rodgin Cohen, one of America's most influential commercial lawyers as chairman of Sullivan & Cromwell: "we were as close as I've ever seen to the edge of the abyss - the abyss being a collapse of the financial system".

Many would applaud the motives of Hank Paulson, the US Treasury Secretary, in refusing to put in public money to prop up Lehman: it's plainly wrong to provide a guarantee to banks that taxpayers will always bail them out for their mistakes, especially when individual bankers can become so rich by taking crazy risks.

Unfortunately this turned out to the wrong time and place to spank the banks - because rather more punishment than may have been necessary or fair was also inflicted on taxpayers.

The US Treasury recognised within hours of the death of Lehman on 15 September that it had messed up, so it - and other governments, including the UK's - embarked on the biggest banking bailout of all time.

Taxpayer support for banks and other financial institutions - in the form of loans, guarantees, investment and the creation of new money - has ballooned to $15 trillion in just Europe and the US. That's equivalent to about a quarter of everything the world produces in a year, global GDP, or more than $2,000 for every person on the planet.
The price of allowing our debts to rise to dangerous levels and of permitting the banking system to become so rickety has been far too high.

But reform of the banking system has been painfully slow. And the indebtedness of the US and UK economies - including escalating public-sector debt - has been increasing.
So the recession may, in a technical sense, be coming to an end. But we have not yet solved the serious structural weaknesses of either the financial system or our economies - and until we do, any recovery may well be insipid, intermittent and fragile.

You can see my report on Newsnight on Monday 14 September at 22:30 on BBC Two or following that on this website.


  • Comment number 1.

    Lessons - what lessons?

    "But reform of the banking system has been painfully slow"

    What reforms? all there has been is talk and not very much action.

    Economists don't learn from their mistakes - otherwise we wouldn't keep having crashes and recessions.

    As a US economist was poiting out at the weekend - the situation is WORSE than when Lehmans went bust because we now have LESS competition, bigger banks - which has increased the idea of 'too big to fail'.

    Banks are run by humans, humans don't reform until they are faced with extinction, until the bankers feel the threat of extinction they will never change.

    .....and we'll all be here again in the future....

  • Comment number 2.

    "few can believe the bull-sized cojones of bankers to be taking fat bonuses again so soon after the collapse of Lehman Brothers"

    those of us who live in the real world fully expected it!.

    The hugh error was not in letting lehman's fall but in letting banks become so powerful when their business plans were based on mind boggling risk. Unfortunately this was ingnored during the time when growth was generating large tax revenues and their was no gain in standing up to the establishment

  • Comment number 3.

    Retail and investment functions within banks need to be completely separate so the high risk element can be folded if required.Banks need to stop using retail savings to gamble on complex financial deals that only benefit the few.

    Its not what the banks want but it will take the risk away from the tax payer in the decades to come..

  • Comment number 4.

    Let me suggest that one of the lessons from the Lehman collapse is that there is a disjoint between the way that academic economists, auditors and accountants are funded to create each new generation of economists/auditors and accountants and financial stability (and probity?). (Particularly economists whose whole 'profession' - if it is one at all, needs to be re-examined and reformed.)

    Recent history has demonstrated that the economics (and accounting) professions is dissuaded by their very education from actually doing the job that they profess that they set out to do.

    The evidence for this is twofold - first that many of the training institutions for economists and accountants are directly funded by the very organisations that they are nominally set up, or profess, to control thereby generating a severe conflict of interest, and second their abject failure to prevent this bubble from growing - even though many of them now say they predicted it all along!

    The very mechanisms that we as a society set up to regulate and control excessive exuberance from destroying the nation have been subverted by the expression of this exuberance - and as is usual very few people are talking about this crisis. The state wishes to be seen to regulate, but unfortunately like the licentious libertine - 'please make me virtuous, but not just yet', or the drunk that wants to go one wagon after the next drink etc. etc.!

    The solution to the crisis is multifaceted, but should include the separation of the funding of training institutions from being financed by the banks and the prevention of auditors from supply any other services to the business being audited and being unable to keep an audit client from more than one year... and I am sure that others can extend this list. (Includes 'being too big to fail' etc. etc.)

  • Comment number 5.

    Ouch - this has got to hurt the Liberals lot:

    "Most people want their government to take more control over the regulation and running of national economies, a BBC World Service poll has found."

    However the consolation is this is a mis-leading poll by the BBC - note how the question says 'their Government' - not Tony Blairs, Margaret Thatchers, Gordon Brown's or David Cameron's.

    Beware the Government that claims to be 'yours' - because I don't remember any of these getting a majority over the people who refuse or abstain voting in the General election. Remember in EVERY election more people DON'T vote for the Government than do.

    ...on that Liberals, Anarchists and Communists unite.

  • Comment number 6.

    The lesson should be 'never again'. Never again should the financial elite-fools be allowed to speculate with billions of dollars of other people's money, without strict regulation, full transparency and clear limits to the risk it poses to the wider society. The problem is that currently, it seems, goverments are not able to effectively govern their own countries and instead banks are deciding the economic fate of countries, because banks are too big to fail, too sleazy to regulate and to control, often with unsavoury, megalomaniac leaders at the top of major banks and hedge funds. Pension funds are the silent, little criticized partners of the banks and hedge funds and are standing by silently as banks and hege funds are exploiting every possible tax and regulatory loop hole to enrich themselves and, at the same time, empoverish the average UK tax payer, pensioner and worker.
    Change is necessary and UK citizens need to pressurize the major UK political parties to rein in the finacial services sector.

  • Comment number 7.

    What sounds like protectionism
    Looks like Protectionism
    Smells like protectionism
    feels like protectionism
    ...but surely can't be protectionism - could it? After all Roberts been talking about 'learning lessons' this morning...

    Watch this space, trade war between the worlds biggest manufacturer and the worlds biggest customer and one already owes the other a whole lot at the moment.
    That should do wonders for the world Economy - fix us right up it will.

    "Clowns to the left of me, jokers to the right - here I am, stuck in the middle with you"

  • Comment number 8.

    A new Glass-Steagall 2 should already be in place by now. This seems obvious to everyone other than the world's politicians. Why?

    The only assumption that can be drawn is that said politicians are in the pocket of the banks. But we know this.

  • Comment number 9.

    Lessons, here's some obvious lessons for us all:

    1) Economists don't know what they're doing, they are trying to 'formulise' human behaviour so they can predict it - failing that they're just guessing.

    2) Parliment is full of greedy fools - easily tricked and eager to please, and is surrounded by people who are only too happy to oblige.

    3) Bankers don't care about other people, they just car about their mortgage, fancy car, boat, holiday and other material things.

    4) The general public has lived in an incorrect assumption that 'everyone above me must be cleverer than what I am because they are above me' - something turned on it's head during this crisis

    5) Politicans are there to distract us from the failures of others and the failures of the Economy (by being unimaginabley incompetent themselves) -

    6) Politicans will say anything to get elected

    7) Bankers will say anything to keep the status quo

    8) People won't say anything until their taxes go up

    9) Peter Mandelson is impossible to get rid of and painful to endure - like that bad rash on my bum.

  • Comment number 10.

    If Lehaman was making huge losses previously incomprehensible, and it is argued that it was wrong to let it fail, does that mean that all the banks that have been rescued are PRESENTLY in a worse state than Lehman was a year ago?

  • Comment number 11.

    Banks appear to be stronger than governments. especially when elections are around the corner!
    Break them up. Too big to fail, wish I had that guarentee behind me. I go full on.

  • Comment number 12.

    "The very mechanisms that we as a society set up to regulate and control excessive exuberance from destroying the nation have been subverted by the expression of this exuberance - and as is usual very few people are talking about this crisis."

    Oh John, this is a classic Capitalist hypocrisy - we're confronted with images of 'fame and fortune' all the time on TV. Images of having it all without any consequence and without having to do any work are all around, lauded and applauded by the media.

    However it doesn't take a genius to work out that "if we are all kings then who will we rule over?"

    Therefore someone has to be the subjects - and the current crisis is the argument about who those people should be.

    The Government (whichever one it matters not) is saying the disadvantaged.

    The (majority of) people are saying the bankers / politicians / elite

    I say - lets grade people by their productivity and usefulness to society and promote them to the top and send the useless rich to the bottom (although not everyone who is rich is useless)

    If you want to argue this concept, before you start - analyse the rise of Katie Price, Cheryl Cole, Posh spice etc. and justify their place in society compared to their wealth.

  • Comment number 13.

    6. At 09:54am on 14 Sep 2009, invisiblehandadvisor wrote:

    "goverments are not able to effectively govern their own countries and instead banks are deciding the economic fate of countries, because banks are too big to fail, too sleazy to regulate and to control,... "

    I would shange this to "too expensive to regulate and to control"

    The reason regulation always fails is because insititutions in the regulatory area (whichever one it is) ultimately have to pay for their own regulation out of their profits, either directly (through FSA style funding) or indirectly through taxation.

    Their argument is that they can regulate themselves to save the cost of this.

    However just as naughty boys forget why they're not supposed to climb on the roof - so do the companies involved.

    It's quite a good analagy for regulation, the Liberal's say let them climb and when they fall they will learn (although you do run the risk of a serious accident)
    The oppostie view is to say 'lay down rules and punish those who attempt' - which has the disadvantage of having to constantly watch your children in order to enforce those rules.

    What we actually get is some rules, which can or cannot be ignored, which may or may not carry a penalty and which are constantly being tested for weakness.

    Fortunately, children grow up - but alas banks (and other busineses) don't seem to.

    So the answer for the banks is 'what do you find most successful in keeping your children from accidently hurting themselves?'

    Maybe a privilege system, banks who adhere to the rules get privilieges - banks that don't have them taken away. works for supernanny!

  • Comment number 14.

    I'm not sure that the US Trasury realised it made a mistake or even that failing to act re Lehman's was a mistake.

    There were a number of key issues here that the piece hints at but does not fully address.

    Firstly re the over borrowing. I'm not sure that the phrase "remotely sensible" fully addresses the position. There was no control at all and the market was out of control to all sense of the meaning.

    AIG had built up huge one side bets on the stock market and housing market continuing to rise and Lehman's more than most had been trading on their own account on tiny margins. Both had put the whole of their business on red and it came up black.

    Lets not forget it was Lehman's that had been feeding Bradford & Bingley such high quality mortgage business that it forced them under as well.

    Hank Paulsen knew that one company had to be let go "pour discourageur les autres" or banks and bankers would feel that they could act with impunity always reliant on governments and taxpayers to bail them out.

    As long as banks remain both deposit takers and casino gamblers on their own account they will be tempted to use what should be ring fenced personal banking deposits for speculation. Surely the time has to come where the banks must be split up to prevent a repeat performance from the bankers.

    Governments had an ideal opportunity to force through bank reform but they bottled it. No wonder the tax payers are cynical about bankers and politicians.

  • Comment number 15.

    #5. writingsonthewall wrote:

    "However the consolation is this is a mis-leading poll by the BBC - note how the question says 'their Government' - not Tony Blairs, Margaret Thatchers, Gordon Brown's or David Cameron's.

    Beware the Government that claims to be 'yours' - because I don't remember any of these getting a majority over the people who refuse or abstain voting in the General election. Remember in EVERY election more people DON'T vote for the Government than do."

    What's your point, WOTW? Do you have one, or are you simply determined to twist the simplest of facts and stories to suit your own relentlessly angry and pessimistic view of the world? Your world is so bleak that I sometimes wonder how you can even bear to get out of bed in the morning.

  • Comment number 16.

    So what was it that the banks, of which Lehman was but one, actually did to cause this? First they paid the government, via campaign contributions to members of Congress and the Senate, in th UK- MPs, to eliminate bank restrictions, then they overleveraged, knowing they could not honor contracts with such leverage, then they lied to their shareholders about the risks and magnitudes of their positions, hid their positions illegally off balance sheet, and through the use of derivatives managed to violate minimum capital requirements on an almost daily basis. They took bank debt leverage from 8:1 to over 30:1, thus assuring that the banking system could not survive even a modest credit tightening or recession. They then made crazy bets in the credit default swap market that they could never honor in a downturn. They loaned money to anyone who could fog a knife because they knew they were going to stuff it to others through securitization and CDOs. If we had a criminal investigation, we would have access to the incriminating phone calls and e-mails which disclose what they really thought of the assets they were pawning off on others. One year on and no news on prosecution, nor evidence raised in civil cases, and this is the main reason it is happening all over again.

  • Comment number 17.

    If Lehman hadn't gone to the wall, surely that would have cemented the feeling even further among bankers that 'it doesn't matter if we screw up 'cos the government will always bail us out' ?

  • Comment number 18.

    "The US Treasury recognised within hours of the death of Lehman on 15 September that it had messed up, so it - and other governments, including the UK's - embarked on the biggest banking bailout of all time."

    I'm no economist but this suggests that instead of calling the players back in (within hours) and sweetening some deal that at most would have cost fifty billion dollars, governments decided to embark on a strategy that will eventually cost upwards of twenty trillion.

    Perhaps the big mistake wasn't in letting Lehman's fall but in propping all the others up.

  • Comment number 19.

    "it's plainly wrong to provide a guarantee to banks that taxpayers will always bail them out for their mistakes, especially when individual bankers can become so rich by taking crazy risks."

    says it all really, and those who ran in a picked through the bones of Lehman and Merrill and RBS etc will now be or going to be giving themselves nice fat bonuses because of the perceived increase in value, this is the real reason why house prices are not dropping to the levels that they need to be for normal people to afford them , because it would hit the books of those who hold the bits of paper

    It has been said before , anyone of us could have got a job with the big banks and done the same thing, there was no skill involved they were in a privileged position and they took advantage of it, the regulators should never of let it happen, but then the governments are run by big business of the benefit of big business, they fund the politicians when they are elected, they drop them cheques when they want certain laws passed or not passed it is no suprise really when you have the facts to look at.

    The question should be did Paulson not help out because he was used to work for a competitor, that DF was an egomaniac that was not liked on wall street?

    of course he would never admit that were it true

  • Comment number 20.

    Actually, the real mistake was to bail out AIG to the extent they did. That bail-out went straight to the guilty parties.

    A short sharp shock to Goldman Sachs and their ilk would have done a lot more good than harm.

    Hank couldn't think objectively. Presumably he felt Lehman would act as a salutory lesson to the others. No chance mate, survivor euphoria for the rest of them.


  • Comment number 21.

    Post 9, as someone who trained as an Economist, but allowed out in the real world for 20 years I would like to respond to your points.

    1) Economists do know what they are doing. Their plans though are crucially flawed in that they assume

    a) people are intelligent and rational in the actions. They aren't.

    b) People will learn from their mistakes. No they don't.

    2) Agreed.

    3) Agreed.

    4) Agreed. However the average mug punter is very stupid and believes what the press, papers and tv tell them without thinking.

    5) Agreed.

    6) Agreed.

    7) Agreed.

    8) Even when taxes go up the general populace is still appathetic. Why for example haven't people moaned about gas prices not falling despite the retail price having dropped by 2/3?

    9) Agreed.

  • Comment number 22.

    Spot-on from R.P.
    We are indeed in a long-term dodgy period.
    Keep the champagne in the cupboard for many years.
    The recession may be getting better, but it all has to be paid for yet.
    Japan learned the hard-way in the 1990s that asset-price bubbles can destroy everything. We will also learn.
    We must put a piece of sticky tape over the "greed" button.
    And bankers must also respect the rest of the population and tow the moderation line......they are only financial workers.
    Everyone (including bankers) should read again Robert Pestons' brilliant article of 31st July 2009..."Who'll be shot when banks misbehave".
    Pestons classic line..."bankers gorging on the carcass of the economy like bloated ancien regime aristocrats".....sums it up for me.

  • Comment number 23.

    "few can believe the bull-sized cojones of bankers to be taking fat bonuses again so soon"

    I can! As long as bankers stand to get rich quick by taking risks, and the bank shareholders and/or taxpayers stand to pick up the bill if it all goes wrong, then we will continue to have reckless lending, leading to boom and bust.

  • Comment number 24.

    15. At 10:39am on 14 Sep 2009, rbs_temp

    I am not pessimistic - I just live the real world (I recall you stating a while ago that the recession "isn't too bad and isn't affecting many people" - simply because it's not affecting you.

    I am very optimistic that the system which controls us (and has done all my life) might actually have failed for the last time. I jump out of bed every morning at the thought that soon everything I and society do won't be driven by unachievable ideals of fame and fortune. A thought that maybe being unselfish doesn't result in 'being left behind' as this system prefers.

    Sadly I am all too aware that there are many people like you with their 'I'm alright jack' attitude from their greedy 80's parents who will be happy to continue with the current system because this time it's destruction has passed them by.

    My point is that most people want the same thing - we're all just arguing about how to get there. However the current system is a 'worst of both worlds' and is not heading in the direction that anyone wants - except those who preside over it currently who are desperate to cling on to power.
    When you come to vote at the next election - hopefully you will be able to work it out for yourself - that's if you can look out of the window long enough to see that there is a problem out there and it's not just the 'army of pessimists'.

  • Comment number 25.

    If I were a bank two very important lessons I have learnt from the past year are:

    1. I have nothing to lose, the government (taxpayer) will bail me out.
    2. I can carry on inventing fictitious products, and put them on my balance sheet (I can just pay the accountants more for a clean audit - it's win-win!)

    I think I'm going to open an investment bank; I will invent a market selling air, and when the public realise the air is overpriced, then I will sell it back to the government in the form of specially packaged "air bonds".

  • Comment number 26.

    Reform of the banking system is being resisted and it should be the function of government to kick the door in and force it on the vested interests who are clinging to their bonuses like Renaissance nudes to their fig-leaves. But we know that this government couldn't knock the skin off a bowl of custad.

    I am beginning to think that the reason we are not seeing the division of retail banking from the funny stuff is that if the funny stuff did not have the weight of all those current accounts to prop them up then the banks will disappear in a puff of red smoke much like Barings did.

    Are we being conned all over again? Is the septic debt the real cause for the slow reorganisation of the banking sector? The taxpayer has the right to know as we are funding the continual survival of the sector.

    We are now also seeing that other vested interest, the GBP100k plus salaried public sector spreadsheet reader starting to rattle his moneybox like a charity collector outside the supermarket. His message is the same as the bankers: keep on paying me my grotesque salary or public services will be slashed and burned by the wicked Tories.

    I am sorry but we have heard all that drivel for too long. To recover our public services we need to slash and burn our way through the brambles of a bloated state sector that had eaten up all the taxes and more even before the economy collapsed.

    Britain is in debt because an elite failed. Either that elite moves over of its own accord or it will be left to the little people to move them over. If you add it all together greedy bankers, an incompetent and grasping political class and a bloated bureaucracy you start to see the essential triviality of Blair's Britain: it was all a lie built on lies.

    Now we have to reckon with the truth. So perhaps it is time the puritans were welcomed back, no matter as to how difficult they can be as individuals. The question is will they be allowed to return as peaceful people or does it have to be done like last time with steel and powder? Please let it be solved peaceably but for my part I will read up on Tom Wintringham just in case. Time for a new and different Commonwealth, perhaps?

  • Comment number 27.

    There will always be the next bubble/crisis. It's the nature of human greed and the essence of capitalism.

    Also I think it is a bit hypocrite to criticise Hank Paulson's decision after we all now have experienced the fall of Lehman. If he knew the consequence, I don't think he will do it either. All I can say is that whether he had done enough home work to project the scale of the aftermath.

  • Comment number 28.

    One consideration that the Media naturally underplay is the de-stabilising effect of 24-hour news coverage. For the last 2 years , Mr Peston included, they've been banging on about the credit crunch, falling house prices, plunging markets, doom-gloom, doom-gloom. I sometimes wonder: if we'd only had 10 minutes of proper news at 6 PM instead of loads of 24-hour channels with so-called "experts" making up the news as they went along, might the crisis have been a lot less serious or even not happened at all ? Caledonian Comment

  • Comment number 29.

    This is exactly why the Labour approach is wrong.

    It is fanciful to think that the correction of the underlying imbalance in the economy can be done without pain. We have spent ahead of our income for years and the bill is due now

    I don't any politician would WANT to do this (sort of makes the voters a bit miffed) but to continue to say that we can leave the spending deficit as it is just perpetuates the problem.

    If Brown does see not that then Labour will be booted out at the next election in a result that will make 1997 look like a close run thing.

    Labour has betrayed its roots when it allowed income inequality to soar and its the poor sods on low income who will be hit hardest - exactly what part of Labour does that represent

  • Comment number 30.

    This isn't really an ideological issue anymore. Rather, it's a "stakeholder" vs. "non-stakeholder issue". It's a sign of our institutional sclerosis, that the majority seem to agree with, that there are untenable systemic risks baked into the cake of our current financial-political complex...and the majority also rate the chance of mitigating the risk through regulation as nil. Perhaps the best sign of the lack of change is that employment in the finance sector has declined just 8 percent since last Autumn. We're in the full bloom of crony capitalism ecosystem.

  • Comment number 31.

    #21 Ian_the_chopper

    Some relevant quotes about economists...

    An economist is a man who states the obvious in terms of the incomprehensible.
    Alfred A. Knopf

    If all economists were laid end to end, they would not reach a conclusion.
    George Bernard Shaw (1856 - 1950)

    Economics is extremely useful as a form of employment for economists.
    John Kenneth Galbraith (1908 - 2006)

    An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.
    Laurence J. Peter (1919 - 1988)

    Socialism failed because it couldn't tell the economic truth; capitalism may fail because it couldn't tell the ecological truth.
    Lester Brown, Fortune Brainstorm Conference, 2006

    An economist is a surgeon with an excellent scalpel and a rough-edged lancet, who operates beautifully on the dead and tortures the living.
    Nicholas Chamfort (1741 - 1794)

    In all recorded history there has not been one economist who has had to worry about where the next meal would come from.
    Peter Drucker (1909 - 2005)

    There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.
    Richard Feynman (1918 - 1988)

    An economist is a man who knows 364 ways of making love, but doesn't know any women.
    Lord Howe (1926 - to date)

  • Comment number 32.

    Some smart people have noted that the problems began with the repeal of the Glass-Steagall Act in 1999 by Clinton, which essentially allowed the safety of a deposit-taking institution to be poisoned by the inherent risk of a securities-trading institution. The Act was established in 1933 expressly to prevent any more instances of deposit-taking banks conduction risky trading activities using the depositors' money as the backstop.

    From there it was a bit of a given that history would repeat itself, when trading institutions are structurally designed to favour short-term profit and crowd mentality. The former comes about through a bonus structure which favours risk-taking - if it works, you get rich and can retire (etc.); if it doesn't work, you lose nothing and either do it again next year or get fired and go and work for a rival firm to do exactly the same thing! The latter is more of a trend-is-your-friend culture - if all the other banks are making money out of this, then we should get involved ASAP and join the party. A pure consideration of fundamentals isn't always a prime motive.

    Now the main issue here is whether the losses that have resulted are sustainable within the system. Governments certainly shouldn't have allowed the financial industry to get too big, but then they were doubtless blinded by the tax revenues coming from the sector.

    Banks have failed for a long time, and will continue to do so, but what has happened here is that it has bene acknowledged that the system cannot cope with banking failure. And this is not good for a capitalist system which must acknowledge as one of its tenets that companies may and will fail!

    So the "lesson of Lehman" is that banking got to big. The lesson is not learned, as we now know, with there now being fewer, larger, banks than before. For some reason, it seems we can't do without these institutions. Why can't HSBC or Santander (say) fill the gaps provided by dead, failed banks and keep the market working? What is the attachment to the big securities firms that sets them apart from almost all other companies, in that they are allowed to pay enormous compensation for success, yet are given taxpayers' money when they fail?

  • Comment number 33.

    #21. At 11:10am on 14 Sep 2009, Ian_the_chopper wrote:

    "1) Economists do know what they are doing. Their plans though are crucially flawed in that they assume

    a) people are intelligent and rational in the actions. They aren't.

    b) People will learn from their mistakes. No they don't."

    I think your response, if an accurate representation of reality, also tells us that what economists 'know' is in fact, wrong. It supports the view that economics is an unscientific flawed activity that the best you can say about it is that it keeps economists off the streets - but the rest of society and the nation and business have been immensely damaged by this self-selected set of wrongly educated individuals. It must be fundamentally reformed. And is incapable of doing so for itself from within!

    Economists simply do not understand their own errors and are incapable of managing their own reform. Many of the peer-reviewed academic papers and books produced and published over the last thirty or so years were a waste of time and money and do not stand up even as a (sick) joke! I spoke to a self-defined 'leading academic economist' over the weekend and he simply was in denial about the waste of his life and the pointlessness (and unscientific nature) of his own academic study, his previous work in the highest echelons of government and the degrees he has been awarding over the last decades. It is a tragedy for him personally and the graduates he produced, but far more damaging for the Nation.

  • Comment number 34.

    Bob reckons: The cause of the global recession was.. the build-up of unsustainable debts by households and businesses
    Well such a build up is inevitable using our preset financial system. Given that business wants more money back that it pays out - profit we are always looking at this sort of pattern :

    He seems to be saying that the problem is we have hit say 40% debt/wages ratio in using the above - if he is saying we should have stopped at something more reasonable - say 30% then all this means is that we would have had this problem a earlier. Unless we use NEFS Net Export Financial Simulation or something like it then no matter how hard we work, how sensible the banking system acts we will keep ending up in this mess again and again.

  • Comment number 35.

    So much for the 'Free Market' then!

    Failing banks can't be allowed to fail and must be propped up no matter what the cost to the taxpayer!

    Then they can get back to their proper job - awarding each other fat bonuses for their ineptitude!

  • Comment number 36.

    The Lessons of Lehman's? Well it depends what you are.

    If you are an ordinary taxpayer, You have paid with your job and in future will be taxed more for maxed out government debt, meaning higher taxes for yonks. Right now, it seems the banks accept no responsibility for their catastrophic errors, they DENY it was any of their fault, think that that's a sensible point of view and get to blame everyone else for allowing their bank to fail!

    The ordinary taxpayer has been told to accept, for decades, the marketplace and competition as being the only valid game in town. When industries in Britain were going bust nothing was sacred and there would be NO subsidies etc etc. But, When it came to the bank's we HAD to make an exception?? In my book if we have to make one exception we can make thousands. We have been lied to!

    And the new Banking Regulations, (that haven't still materialised?) - I think we're politely being told to whistle for them! The ordinary taxpayer has been told to go take a running jump. (Just that the ordinary taxpayer is too dumb to work this out.)

    As for the banks? Well, back to bonuses, back to privatised profits, back to being socially useless!

    The error, (putting it mildly) is indeed allowing banks and bankers to become so powerful that they escape punishment.

  • Comment number 37.

    "... all of those whom I interviewed for the film said the US Treasury made a huge error in allowing Lehman to fail, in not using public money to prop it up."

    No, that wasn't the error. The three people that Robert quotes - all whining about how Lehman Bros wasn't saved from its own greedy stupidity - are in the position of someone who tries to commit suicide but is saved by a passer-by, and who then complains that the passer-by didn't act quickly enough.

    The real mistake was to give the stupid bankers everything they wanted without controls that made them liable for the entire cost of the bailout. As many people have observed in the past, the post-Lehman's bailout has transferred the consequences of the bankers' failures onto the real economy ("socialising the losses") while allowing them to return to paying themselves vast salaries and bonuses for doing nothing very much of any value.

    One of the worst aspects of the bailout was the way it allowed many banks, whose plight was only slightly less dire than Lehman's, to pretend now that they never had a serious problem. The bailout of AIG in particular routed vast sums of American taxpayers' money to banks that would have foundered if left to themselves but who now claim that they didn't need bailout money.

    The real challenge is to ensure that when this happens again, then the first and worst pain is suffered by the senior management of the failing bank; something like a requirement that taxpayers' money is only available after the senior management have sunk every last penny of their personal wealth into saving the bank.

  • Comment number 38.

    I think I'm going to open an investment bank; I will invent a market selling air, and when the public realise the air is overpriced, then I will sell it back to the government in the form of specially packaged "air bonds".

    Too late, its already been done, its called carbon trading and it is worth $100Bn/year. And, surprise, surprise, the 'ratings agency' that was supposed to make sure the carbon was actually being offset has been suspended because it wasn't.

    The entire semiconductor industry is worth about $220Bn/year and just think about how much our lives are changed for the better by electronic products. Yet we are forced by government to spend about half as much on something which has no effect at all. If the carbon offset market grows as expected it will be larger than the semiconductor market in a year or so.

    Banks and government have created a crazy economy where there is almost no relationship between cost and value.

  • Comment number 39.

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

  • Comment number 40.

    perfect competion is neither perfect or competitive. Banking perfectly highlights this.
    Instead of the self regulatory nature of entities acting in their own interest we have a complex relationship of mutual dependency
    Instead of ever improving products because buyers will understand them and chose an improved version we have have products so complex nobody understands the full toxic nature of.
    Instead of rational decision making people will ignore all risk logic for a higher return.
    Instead of perfect knowledge we have company confidentiality.

    Im sure this list could increased for virtually very tenet of capitalism

  • Comment number 41.

    Slightly friend of a friend stuff this but speaking about bull-sized cojones was told last week of recent dinner talk by a banker who works for the London office of a Swiss bank. I've worked for 20+ years in accountancy/tax/financial services so I admire the apparent neatness of it all.

    Leaving aside his comment that the good times were back for bankers and that new appointments were now being offered 2 x annual salary as a Guaranteed Bonus what really intrigued me was what happened last year at bonus time. I've not seen any mention of it on other websites so perhaps the banking community are keeping a lid on it. lieu of bonuses last year the bank transferred to this banker some of the securitised toxic debt it had on its books the value of which was next to nothing following the Autumn bloodbath. According to this banker his "parcel" of debt is now worth 17% more than it was at the start of the year. Put in context the FTSE-100 is only around 13% higher than it was at the start of 2009.

    So what does this mean? I'm more than happy to be corrected but the bank gets a corporation tax write-off at 28% as it no longer owns the parcel. The value of the parcel at the time of transfer to the banker is next to nothing so there is no benefit-in-kind taxable at income tax rates (presumably 40%) on him and when/if the banker sells the parcel any gain will be taxed at the Capital Gains Rate of 18% and not the Income Tax rate of 40% (or possibly 50% from next year).

    Its not the first time I'm left thinking the banking community is playing GB and his band of incompetent fools for schmucks!

    And a footnote....the banker's father despairs of his son....his chosen career has brought the world to its knees etc as a birthday gift the banker has just gifted to his father some of the parcel of debt!

  • Comment number 42.

    27. At 11:38am on 14 Sep 2009, Don_Kuan wrote:

    "There will always be the next bubble/crisis. It's the nature of human greed and the essence of capitalism."

    ...only with people who are greedy by nature.

    The fact that this system actively encourages, promotes and infects greed and selfishness into society doesn't actually mean greed is in the nature of human beings.

  • Comment number 43.

    29. At 11:41am on 14 Sep 2009, Cardiffopinion wrote:

    "It is fanciful to think that the correction of the underlying imbalance in the economy can be done without pain. We have spent ahead of our income for years and the bill is due now "

    ....this isn't exactly true however, WE haven't spent our expected income, the Government was fine spending taxes (earnings) - the problem came when the Government HAD to bailout the banking system (who had been gambling on OUR INCOME and FAILED) - which resulted in us being propelled into enormous debt at a time when our income falls (GDP / recession)

    Why should we bare the pain of a minority of people's mistakes?
    Is that fair? is that just?

    I suspect most people would say it's not.

  • Comment number 44.

    #33 John_From_hendon

    "I spoke to a self-defined 'leading academic economist' over the weekend and he simply was in denial about the waste of his life and the pointlessness (and unscientific nature) of his own academic study"

    ...I bet he loves you now though doesn't he?

  • Comment number 45.

    I was planning to write a succinct, clear comment, but was distracted by the sound of my blood boiling. To calm down, I read a few posts. I read

    ** 16. At 10:51am on 14 Sep 2009, by peterdough **

    and decided Peter had done such a fine job I needn't bother trying.

    Ditto No. 16.

  • Comment number 46.

    The lesson I take from the Banking crisis is that whilst these banks and their highly paid execs were pumping billions into the exchequers in the USA and HMG here, all the regulators were encouraged to tread softly softly. Of course the bubble eventually had to burst and guess what.....the banks blamed the regulators and the regulators blamed the banks. All the afore mentioned billions were spent by Governments in "improving" public services or similar things. In effect we have all benefitted from the illgotten gains and now we must pay for them . Until that has been done our economies will remain out of balance. This will take many years . The UK was almost bankrupt after WW2 and we pulled through then so we can do again.

  • Comment number 47.

    Exactly, no change in the system and it will happen again. The SEC, a financial industry run watchdog, was busy knawing on the bones provided by the bankers and forgot to look at where the bones were actually coming from. Nothing has changed and the banks have rewarded themselves with big bonsus' for have stolen trillions and dumpted the debt on the public. The real issue is the influence the banks exercise with elected representatives. Until those ties are cut the process will continue and the lack of consequences for the money-lenders will only encourage their tendencies to be dishonest.

  • Comment number 48.

    A few thoughts:

    a) Was it, stictly speaking, the degree of leverage that brought Lehmans down? As I understood it, it was that they were "borrowing short" and "lending long". When the downturn came, as it was bound to, the short lending dried up and Lehman could not pay back their creditors.

    b) Watching the BBC dramatisation and documentary of the fall, it was hard not think that they ducked the real questions. Why did the US Government refuse to bail Lehmans out? We were not told - and both programmes started with that as the premise. Why were they of the view that the consequences were manageable? Everyone now seems to be being wise after the event but what was known or feared or expected before it happened?

    c) If Lehmans had been bailed out, would all that value have been preserved? Or was the system so over-borrowed against dodgy assets that a collapse back to 'real' values was inevitable - and Lehmans was just the trigger (without which another would have come along)? Would the Government otherwise have had to bail out all the banks at their own valuation - ie even greater cost?

  • Comment number 49.

    To steal a point from a far wiser man than myself; This years Reith Lecturer Professor Michael Sandel wrote eloquently and persuasively in the New Statesman 14/09/09 - "Bankers on Bail" that bankers blamed the collapse on a financial Tsunami which they could not have seen coming and were not responsible for.... hmmm he then points out that if they were not responsible for the bad then surely they were equally not responsible for the good times either and so did not deserve the lavish payouts they received then. " If the weather is to blame for the bad years, how can it be that the talent, wisdom and hard work of bankers, traders and wall street executives are responsible for the stupendous returns when the sun was shining? .........

  • Comment number 50.

    17 Brian NE~37

    Too true and none of us would have had the faintest idea of the scale of the problems with the banks.

    Lehman's demise means one less failed bank having to be propped up by the taxpayer. Perhaps one was not enough as there are clearly too many banks now for the business available and these banks are mow too big to fail after being swallowed up by other banks.

    Whatever is still hidden in the banking system is obviously bad enough for our own government to prop up most of the banks here so they must assume that leaving it to market forces to correct would have been too catastrophic.

    Northern Rock and HBOS would have been the first to go. A guarantee of savings should always have been any governments first priority so savers would not have lost their money. I doubt if we will ever be told the final cost of such rescues or with hindsight whether they should have been rescued at all.

    Like Lehman's ways can always be found to avert any crisis for why else do we pay our top accountants so much money.

  • Comment number 51.

  • Comment number 52.

    Banks do not create wealth. We should reward creators of wealth. I get annoyed when bankers, who have never created wealth, sit in judgement deciding who should and who should not be supported.....and, as has been shown through this crisis, they end up supporting each other!

  • Comment number 53.

    #18 tinytimtwo "Perhaps the big mistake wasn't in letting Lehman's fall but in propping all the others up."

    I do wonder if you may be right there.

    As Robert says the cause of the recession was "the build-up of unsustainable debts by households and businesses in the US and other economies". But what always seems to be forgotten is that for every debtor there is a creditor.

    For all the debts that individuals and businesses built up, there were creditors (banks). And for all the debts that banks built up as their sub-prime loans went bad, there were also creditors (rich individuals, wholesale money markets, etc). To get rid of the debt, either debtors have to pay back what they owe (which can't be done without crippling demand in the economy for years) or the debts have to get written off.

    If more of the banks had been allowed to go under (and only the guarentee of £35k was returned to depositors) then yes there would have been a cascade of losses, but ultimately the debts would have been written off. Instead Governments bailed out the banks and thus the debt has been transferred onto the taxpayer (while the net creditors remain nice and safe).

  • Comment number 54.

    #44. writingsonthewall wrote:

    "#33 John_From_hendon

    "I spoke to a self-defined 'leading academic economist' over the weekend and he simply was in denial about the waste of his life and the pointlessness (and unscientific nature) of his own academic study"

    ...I bet he loves you now though doesn't he?"

    Yes, he was a trifle frosty afterwards!

  • Comment number 55.

    Other than the generalised criticism of failing to see the disaster looming which could be levelled at everyone else in government, is it really right to criticise Paulson, Bernanke and Geitner for the Lehman decision. They had a lame duck President in office but not in power, US Congress and McCain and Obama to get on board before they did anything significant.They may have had reason to assume they may not achieve political consensus. They presumably were trying to rein back on the assumption of bankers after Bear Sterns, Fannie Mae etc. that sovereign bailouts were on tap. The bankers were testing them out. They must have thought that Wall Street had more to lose if Lehmans went down and would be self interested enough to bail out Lehmans. Did they have all the information they needed to make their call? Its easy now in retrospect.

  • Comment number 56.

    "all of those whom I interviewed for the film said the US Treasury made a huge error in allowing Lehman to fail"

    Did you interview any Farepak savers or Equitable Life policy holders?

    I guess not. But they they were just ordinary people - the type hung out to dry by government and big business every day.

    The trouble is that the rich think they have some divine right to make a profit, and if things go wrong then the taxpayer should step in to help them - be it the Lloyds Names of the 80s or the Lehman bankers.

    People have to face the music, and that includes bankers too!

  • Comment number 57.

    what is so worrying is that with the media frenzy over "bash the bankers", everyone now thinks they understand investment banking. they dont. #52:"banks do not create wealth" - of course they do, hence the storm over Barclays 3bn profits etc etc. what people dont realise is:

    1) only a very small minority of bankers get these multi million bonuses
    2) with regard to "the taxpayer" suffering: how much money do you think these people contribute in tax compared to the average worker?!
    3) bonuses arent paid in cash to ride off into the sunset - they are paid in shares (it at all in 2008/9), meaning bankers have generally NOT made huge money since the crisis.
    4) you want to regulate more? fine but dont expect the banks to stay, they'll all leave to NY (where they wont get regulated), and off goes 23% of the london economy and >£20bn annually in taxes - then where we be?

    before you ask, no i am not a banker, I just find it funny how people's jealousy seems to take over reason.

  • Comment number 58.

    John, post 33. I wasn't intending to say Economists are right it is just that they think rationally and assume everyone else will as well. To be blunt they are deluded.

    Pst 31 you missed the one about the scientist and the economist on a desert island. They each have a tin of beans and need to open it.

    The scientist suggests if they leave them in the sun they will heat up and the tin will burst and then they can eat them. He does this and the can explodes unfortunately the beans go everywhere so they cannot be eaten.

    The economist suggests "let's assume we have a tin opener"

    Post 41 I have heard that too. Isn't life grand! They win and we pay up whatever happens.

  • Comment number 59.

    Does anyone know the exposure Lehman had in the derivative markets. I suppose with 80 trillion on the line globally their exposure as a specialist investment banker would be greater than most which is a possible reason why the Fed moved away.Why isnt anyone talking about derivatives anyway,the exposure here seems to dwarf what has happend in the last twelve months.Is it because most of the activity here is Off balance sheet and would take time to unravel? Surely this must have been tightened up after Enron mmmmmmmmmmmToxidity Paradise!

  • Comment number 60.

    Perhaps the lesson's are:

    1) No bank is too big or too important to fail

    2) Let any bank fail but with security of savers deposits

    3) Make bank bosses not only accountible to shareholders and savers but also ordinary bank employees who work hard and many on modest salaries and are often forgotten and treated badly when banks get in difficulty.

    This is too simplistic, but the principles, I think, are very clear.

  • Comment number 61.

    Ive just had a nasty thought. I despise Thatcher, the woman who almost destroyed my city along with many others.

    Couldn't we find a Thatcher-type person who can take on the bankers and give them a right good kicking?

  • Comment number 62.

    Barry Ritholtz, author of "Bailout Nation", claims that the Federal Authorities were reluctant to save Lehman Brothers because they had recently turned down a commercial rescue, by Warren Buffett and others, in the belief that they could get more lenient terms from the Government. The Fed, according to Ritholtz, were reluctant to encourage banks in trouble to turn down private rescue offers.

  • Comment number 63.

    Israel builds new houses on the Gaza Strip...
    US engages in trade protectionism...

    Make it a habit/custom, and everybody suffers. Eventually.

    Lehmans ??
    Arguably this 'failure' brought home to investors, and others, the seriousness of the ''financial imbalances'' around the world.

    Oil fell
    House prices fell
    Stock Markets fell

    Vast sums of money (trillions) started their return to the ''birth/spawn pools'' of future business deals.

    There are four kinds of investors .....Bears,Stags,Bulls, and Chickens(home to roost,cash) or five(?), Salmon(wily,old Buffett,Alex Bird) ??

  • Comment number 64.

    The lesson that have been taken from this crisis?

    Ho ho.
    That if you are a banker with chums in the goverment and media you can shaft the taxpayer like a drugged up call girl who fell asleep watching X factor.

    Over and over and over again.

  • Comment number 65.

    The lesson I take from the banking collapse is how stupid people can be.
    The first person I blame is myself, for buying Lloyds TSB shares and rubbing my hands with glee when I took home the 10% dividend (tax paid) each year. I was totally unaware that my bank was being run by a group of people who were about to do the most stupid thing anyone has ever done in business. We had a super bank making good (if solid) profits and safe as the houses they lent on. Out there was a morsel that would turn the stomach of anyone, weak constitution or not. It was called HBOS and was a dead duck floating in toxic slime.

    The second people I blame is the Board of Lloyds TSB, who had an evening meeting with Gordon Brown, and as a result finished up agreeing to buy the dead duck and its toxic slime. Why would anyone be so stupid, I asked myself? Why would anyone who had a bank worth 10 pounds per share in 1999 buy a bank that would leave the entire company worth less than ten quid in total?

    The third people I blame is the institutional shareholders, who owned shares in both banks, and therefore had the power to see the bid through. Were they seduced, or simply trying to save their investment in the dead duck, but ruined their investment in the swan in the process?

    Next come the regulators, both the FSA and Europe. They looked and saw a virtual monopoply being set up with over 30% of savings and loans. At best they went to sleep, at worst they did nothing because they were lent on (forgive the pun). Now they are making a noise, but the black horse has already bolted.

    Step up the Government, which owns 43% of the shares, a lot of which were bought at 1.73 whereas cute people like me avoided that con and waited to buy them at 38p. My life is brightening, but not much. Now the government, and in particular the Treasury, seek to make Lloyds pay through the nose to protect itself from the toxic slime which the Government helped Lloyds to accumulate.

    It has all the hallmarks of Godfather 4, with Gordon Brown in the role of Don Corleone resurrected. Me? I am going to the mattresses.

  • Comment number 66.

    48. At 2:00pm on 14 Sep 2009, chriss-w


    From what I saw the 'reasons' for not saving Lehmans were:

    1) Hank Paulson worked for Goldman Sachs previously - making them safe no matter what.
    2) Merril Lynch usurped the saving of Lehmans by moving in on the BoA take over - which was more appealing to BoA.
    3) The US authorities were planning to 'let free market principles ride' - especially as this was a republican (regulation lite) Government. After they saw the destruction that Lehmans brought they suddenly thought saving the rest was a good idea. Remember they had already bailed out Bear Stearns and possibly thought it was isolated, when they realised the whole system was fubar'd then they realised they had no choice but to save them all.
    4) Paulson hadn't got the TARP money agreed at that point, otherwise I'm sure he would have used it to bail out Lehmans.
    5) Remember the crisis was managed by 'not the brightest bulbs in the box' and I suspect a lot of it was guess work and hope - whether the conciously decided to save Lehmans is giving them the benefit that they were 'thinking' at the time - whereas I would suggest there was little thinking and a lot of irrational panic.

    A lot of faith is put in the people at the top - but in all crises most humans revert to type and run around like headless chickens without having a plan.

    I suspect Hank, The 'Gorilla' and the other players were no different.

  • Comment number 67.

    54. At 3:17pm on 14 Sep 2009, John_from_Hendon wrote:

    Ah well - you win some....

    Why is the media wasting time asking for political leaders to debate on TV, I want to see John_from_Hendon explain to the world's leading Economists that they have in fact been wasting their lives as what they have learnt is
    a) wrong
    b) What everybody with brains turned down at University. that's a show worth watching...

  • Comment number 68.

    57. mmblog:

    Banking creates wealth? Really, now there's me thinking that wealth was manufactured, mined out of the ground or grown on trees. Oh you mean wealth, as in the largely hidden expansion of the money supply (when banks are running the way we're told they should). Monopoly money wealth.

    Banking is a skim, the only wealth it 'creates' is wealth diverted from the parts of the economy that actually produce it, into the hands of a tiny elite who do not.

  • Comment number 69.

    57. At 3:44pm on 14 Sep 2009, mmblog

    "what is so worrying is that with the media frenzy over "bash the bankers", everyone now thinks they understand investment banking. they dont. #52:"banks do not create wealth" - of course they do"

    mmblog, I have been working in Investment banking for about 12 years now - can you explain how an investment bank 'creates wealth'?

    Make sure you don't get confused between 'create' and 'move around'.

    By the way - I am not jealous of anyone, I do very nicely from this fake industry - however I do have the intelligence to see a unsustainable growth model when I see one (which is no good for anyone in the long run)

    In answer to your other points:

    1) True - but only a small minority of the country earn the majority of the wealth.
    2) Bankers are the biggest tax dodgers going - look up 'tax advisor city' on Google and you will see the demand. Why do you think a greater proportion of City workers are non-doms?
    3) When you're paid £6 million in bonus (for one year) without any risk - who needs to ride off into the sunset? You're also forgetting that most share schemes allow vesting after 2 years at most so it's not like it's a locked in bonus.
    4) Banks are always threatening to leave the country - as they well know if they go then the rules of competition (they love to play by - sometimes) will ensure they are replaced if there is demand for shylocks and huge overdraft rates etc.
    Do you worry that increased numbers of police will lead to all our fugitives and criminals leaving in great numbers and that there will be a shortfall?
    Also remember that they can only trade / lend in this country in OUR currency - therefore if they disappear off abroad we can easily ensure they don't benefit - AND you're assuming NY will let them in (and they are possibly more hostile than us - see UBS and tax evasion) time think before you play devils advocate - the bankers don't need defending they already have the government, police authority and Army under their control (through Government) - they don't need defending.

  • Comment number 70.

  • Comment number 71.

    'But reform of the banking system has been painfully slow.'

    What reform? Where? When?

  • Comment number 72.

    'Lehman Bros - a firm not far short of its 160th birthday - was simply one example among many of a bank that had lent far too much relative to its capital resources (its buffer for absorbing losses), that had far too little cash and secure funding to reassure creditors that it could not run out of the readies, and that was too intimately connected in too opaque a way with too many other financial institutions.'

    One paragraph, one sentence and two commas!

    I believe the BBC bloggers, would benefit from some competent punctuation; I don't suppose there will be any funding for lessons, however, simple use of a well known PC word processing application may help!

    Come on RP, more care next time or it's detention for you!

  • Comment number 73.

    The lesson of Lehman Brothers is that banks should be more prudent and that governments should wield a firmer regulatory hand.Enron style investigations for fraud perhaps?

    I thinks its time all banks were forced to separate the investment and the savings aspects into two separate institutions. In that way high risk investors and investment bankers will know that their losses will not be bailed out with the savings of others, who are happy to receive a more modest return with less risk.Banks should also be compelled legally to make provision for repayment of monies in cases where bonuses were paid but toxic debts were incurred.Failing that re-nationalise the banks.

  • Comment number 74.

    There has nothing been learned by the so-called 'Lessons of Lehman', the whole debacle was the first of a series of manufactured financial crises to steer the global economy towards a particular goal, that of one-world government, one-world currency, one new world order. The second of the manufactured financial crises is on the way, and is already showing signs of its appearance in mortgage lending that was supposedly higher quality than the sub-primes, i.e., 'althays' and 'option arms' type mortgages.

    Option Arms type mortgages brought borrowers in through very low 'teaser' interest rates, but would reset at some later date to a higher interest rate, which for many borrowers will be more than they can afford, and they will end up defaulting on their payments and end up losing their home. Interest rate resets are about to occur.

    Just as banks around the world mired themselves in the sub-prime mortgages, and ended up getting burned, they have equally mired themselves in these types of mortgages too, and are about to get burned yet again, signaling for another bailout.

    The overall picture is one of a balloon that became over-inflated to the point of bursting under its own success, so a decision was made to deflate the balloon in a series of controlled deflations, and that is what we are going through. However, what it also provides is the gobbling up of competing banks by the larger ones that are always seeking to consolidate their competition under their corporation.

    The elites that own and run the largest banks are determined to shape the world's future to their vision through domination under the banner of a New World Order, and through a series of Hegelian Dialectic exercises have practically achieved their goal.

    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
    Thomas Jefferson (Attributed)
    3rd president of US (1743 - 1826)

    You can wake up to the facts or you can stay asleep. The choice is yours!

  • Comment number 75.

    #74. Elysiumfire - Nicely put.

    My encapsulation is that the Banks have subverted the state.

    (And further that the managements (and academic economic supporters, and relevant government employees) should suffer all the consequences of 'subversion' under the law.)

    #67. writingsonthewall wrote:

    "I want to see John_from_Hendon explain to the world's leading Economists that they have in fact been wasting their lives as what they have learnt is
    a) wrong
    b) What everybody with brains turned down at University."

    To me it has become encapsulated in a simple argument. The subject of economics sets out its table as explaining and understanding something they call economics which has connections with the use of money and goods in something they call an economy.

    Well, if they know so much why did they get it so wrong? The (I believe, inescapable) answer is that their paradigms and theories are wrong as they did not model the crash and its consequence and were no use in protecting us from its consequences. They are the proponents of 'a flat earth' and their models, which are unsoundly based (as they do and did not work), are valueless except as examples of error. So they are a failed subject and the logical consequences for the adherents of the nostrums is that they are failures and their whole life has been the pointless pursuit of the philosophers stone. Or should I put it in stronger language? Your theories are false and dis-proven.

  • Comment number 76.

    Of course the bankers have learnt their lessons from the financial crash. No matter what they do, what risks they take and how much they pay themselves, the tax payer will bail them out. They have learnt this very well!

  • Comment number 77.

    It’s a strange situation where one year after a major problem no one appears to have picked up on the learning points.

    No organisation should be greater that the whole and if banking cannot resolve its own problems then the responsibility should be taken away from them.

    Having been forced(via taxes) to pay charges to an organisation that has proven itself not fit for purpose I am not surprised that they are still getting bad press.

    A year on can someone remind me who was prosecuted for allowing this to happen?

  • Comment number 78.

    Well, one year on from Lehman's collapse, we now have a benchmark.

    The theory goes that you can't let the banks collapse.
    No-one said the entire system had to go belly-up. In the UK HSBC, Standard Chartered, and at one point before their stupidity, Lloyds TSB, were not perceived to be in crisis. So presumably they would have survived, along with all sorts of other niche players such as Building Societies, TescoBank, Credit Unions.

    Now, Lehman was allowed to fail.
    So who has done the analysis of the fallout of that failure? Who has lost how much, and has it been evenly spread across the economy? Or was it the speculators, or the pension-funds, or the property market, or the savers?

    This is a serious question. Who all actually lost what, when Lehman sank?
    Obviously lots of money on a spreadsheet went red, but has it just been a collective reduction in asset-values, loss of employment and bonuses for those at Lehman, or have people's life savings evaporated like at Madoff? Perhaps those who owed Lehman money, have escaped their debt?

    An answer to that question might let us judge objectively if the system could have borne others going down too.

  • Comment number 79.

    Nobody seems to have addressed one of the main reasons for the banking crisis which is the rating agencies' participation. They are paid to give ratings to instruments like CDS's and CDOs by those issuing them and so can't be considered neutral. When I worked in the dealing room of a major bank the arguement put forward by the team dealing credit derivatives was that the paper was AAA and so the risk assessment staff had lost the arguement against these flawed instruments before it started. Rating agencies should be controlled and run by the Central Banks but given independence of view, not by those who have vested interests.
    Oh... and by the way... what about the auditors who signed off all those dodgey deals? Don't they have some questions to answer?

  • Comment number 80.

    There is a simple cure for most of the problems caused by banks/ investors so far.

    1. Stop the financial institutions lending to each other.. make them rely on their own assets for lending purposes. They would then have to generate wealth by normal legitimate and trackable means instead of pseudo wealth creating scams.

    2. The top executives, in any stock exchange listed company must be forbidden from paying themselves more than 10 times the average salary in the organisation in which they work.(including bonuses golden handshakes or any other incentives) This would have the effect of incentivising the executives to work for the good of the whole company and not hive off profits into their own personal fortunes.

    3. The gamblers on the stock exchange should be prevented from short term gambling by enabling a minimum holding period for all deals. Say 12 weeks. Once a stock is bought it must be held for at least this period. This will mean futures and derivatives will go and investers will need to take a real interest in the stocks they buy and the companies beneath them if they are to make any profits for themselves.

  • Comment number 81.

    Can anyone tell me if there is evidence as to the 'natural' return on banking as an industry (e.g. compared to other industries) ? Could it be estimated by comparing banks which did and did not commit their capital to derivatives ?
    Is there any overt sign that bankers have accepted that a bubble boosted 'profits' on paper and that their profits will not match the previous levels ?
    Any public profit warnings ?

  • Comment number 82.

    Call me synical, but was this not planned? Surely it was clear that the colapse of Lehmans would have global catostrophic impact... if it was not clear to those in power - then its time for them to push off and allow those of us to whom it was clear to run the ship. if it was clear then its time for them to pus off as they have done enough damage todate.

    But then again the ones in power are keepeing the club doors shut, otherwise the real truth will emerge!

    Oh and what was the price of a barclays share around the colapse? what is it now? who has been buying? the Club members and their fund managers I guess....

    I know Im synical....


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