Postmortem plans for banks under threat of exinction
If there was one big realisation to come out of the financial crisis
— alongside the fact that banks were riskier than believed —
it was this: policymakers did not know how to wind up a bank without causing chaos.
FT 6 March 2017
We are still groping for truth about the financial crisis
It has been eight years since Lehman Brothers went bankrupt and still it defines the calendar.
For anyone in the financial world, time is divided into Before Lehman, and After Lehman.
John Authers, FT 16 September 2016
David Stockman's Conspiracy Theory
Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson,
Bernanke stampeded the entirety of Washington into tossing out the window the whole rule book of
sound money, fiscal rectitude and free market discipline.
In fact, there was no extraordinary crisis.
The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street
13 April 2016
Lunch with Ben Bernanke
I turn, finally, to perhaps the biggest question about the crisis. Could they have avoided the failure of Lehman in September 2008?
“No,” he responds firmly. “It was completely unavoidable. Without a buyer, there was no one to guarantee their liabilities. So no one would lend to them. There was a complete run of all the creditors, all of the counterparties, all of the customers.
And if we had lent them the money and somehow conjured up some fake collateral, in violation of the law, we would have ended up owning the firm, and it would have been a non-viable firm.”
Martin Wolf, FT 23 October 2015
Martin Wolf at IntCom
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Hillary, Jeb och Lehman Brothers
In the US big donors in the presidential campaign — folks who might be expected to remember the turmoil of 2008 — are behaving as if the Lehman bankruptcy didn’t happen at all.
Republican money has flooded to Jeb Bush, the former Florida governor who was serving as a highly paid adviser to Lehman at the very moment that it failed.
Gary Silverman, FT September 18, 2015
Hillary Clinton is promising a return to the kind of administration run by her husband, Bill. Yet it was under Mr Clinton that some of the biggest mistakes leading to the financial crisis were made — among them, exempting the derivatives known as credit default swaps from more rigorous federal regulation.
In such an unsettled context, it is understandable that voters will start looking in unlikely places for alternatives to the establishment presidential candidates.
Gary Silverman is national editor and US deputy managing editor for the Financial Times.
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Is Deutsche Bank The Next Lehman?
Deutsche Bank is sitting on more than $75 Trillion in derivatives bets
— an amount that is twenty times greater than German GDP.
Tyler Durden, zerohedge 13 June 2015
First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008
If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed.
The nature of all fractional-reserve banks — who are by definition bankrupt at all times –
is to project an aura of stability until that illusion has already begun to implode.
In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure.
1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount.
Meet Tom Humphrey. He heads up Deutsche Bank’s Investment Banking operations on Wall Street. He was also head of fixed income at Lehman.
Deutsche Bank at IntCom
The U.S. dollar, at its highest level in nine years, is about to fall off its perch.
That’s the outlook, at least, of Lawrence G. McDonald, n his New York Times best-seller, “A Colossal Failure of Common Sense,” warned colleagues at Lehman Brothers
Energy companies took out $1.6 trillion worth of debt since 2009. Since 2012, emerging market governments and companies have taken out around $2 trillion worth of debt.
The catch here is that they often borrowed in dollars.
MarketWatch 7 january 2015
When Lehman Brothers went bankrupt and AIG was taken over by the US government in the fall of 2008, the world almost came to an end.
Major banks in the US and the UK were literally hours away from shutting down, and ATMs were on the verge of running out of cash.
John Mauldin 29 October 2013
Read more here
Lunchtime on Sunday, September 14, 2008, and I was working from my apartment in New York’s East Village.
It had been a hectic weekend, preceded by a week of speculation as to what the future held for Lehman Brothers.
Car after car had lined up outside the New York Federal Reserve waiting for the heads of
America’s biggest banks and a host of US banking and financial regulators.
By Saturday night it seemed clear from talking to those involved that
a solution for Lehman would be agreed by the end of the weekend.
James Quinn, Telegraph Business Editor, 29 November 2014
There were, it seemed, only two possible options: either Barclays or Bank of America would buy Lehman.
In the meltdowns of Lehman Brothers and AIG, the equivalent of bank runs afflicted money market funds, repo markets and securities lending.
When panicked lenders pulled the short-term funds that backed financial groups’ long-term assets, borrowers could not sell holdings fast enough to meet the demand for cash.
Financial Times editorial 14 October 2014
Traumatised by the way Lehman Brothers’ collapse almost brought down the financial system,
the European authorities concluded back then that every bank was systemically significant and none could be allowed to fail.
This led to the egregious /Outrageously bad; shocking/ mistake of making Irish taxpayers bail out German, French and UK investors
in private Irish banks
FT Editorial August 4, 2014
Utvecklingen av finanskrisen, som briserade 2008, hade kunnat se helt annorlunda ut.
Det slår Timothy Geithner, chef på Federal Reserves New York-kontor fast i sin nya bok "Stress test".
SvD Näringsliv 13 maj 2014
Att Lehman Brothers föll den 15 september 2008 skyller han till viss del nu på Storbritannien.
Efter många turer stod brittiska Barclays kvar som den sista banken i budgivningen om Lehman Brothers.
Någon affär blev inte av då de brittiska lagstiftarna, vilket varit känt sedan tidigare, ställde sig i vägen.
USA hade dock varit redo att göra sitt för att försöka rädda Lehman Brothers, menar Geithner.
"I slutändan är jag övertygad om att Fed skulle ha hjälpt finansiera en affär med en villig köpare", skriver Geithner,
som dock inte är helt övertygad om att Lehman Brothers därmed skulle ha räddats från konkurs.
bok "Stress test" Amazon
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On the morning after Lehman Brothers filed for bankruptcy in 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis.
The Fed’s policy-making committee voted unanimously against bolstering the economy by cutting interest rates, and several officials praised what they described as the decision to let Lehman fail,
saying it would help to restore a sense of accountability on Wall Street.
New York Times, 21 February 2014
James Bullard, president of the Federal Reserve Bank of St. Louis, urged his colleagues “to wait for some time to assess the impact of the Lehman bankruptcy filing, if any, on the national economy,” according to transcripts of the Fed’s 2008 meetings that it published on Friday.
The transcript for that meeting contains 129 mentions of “inflation” and five of “recession.”
That optimism would not long endure. Just minutes after the end of that first meeting, a smaller group of Fed officials agreed to rescue the faltering insurance giant the American International Group, a company never before subject to Fed supervision that until then was barely on the government’s radar.
Transcripts of the U.S. central bank's meeting on Sept. 16 2008
Feb 21, 2014 Reuters/CNBC
Federal Reserve policymakers, in an emotional meeting on one of the darkest days of the 2008 financial crisis, were worried the failure of Lehman Brothers a day earlier would wreak havoc on a teetering financial system but feared cutting already low interest rates might prove an over-reaction.
Transcripts of the U.S. central bank's meeting on Sept. 16 of that year, released on Friday, showed then Fed Chairman Ben Bernanke flatly telling his colleagues he was philosophically torn about the collapse of the investment bank.
Since the debt crisis of 2008, the foreign-exchange market has been the dog that didn’t bark.
The euro has not broken up; the dollar has not imploded in the face of quantitative easing;
The yuan has not become the world’s reserve currency of choice.
USD trade-weighted index is within 2% of where it was when Lehman Brothers crumbled
Charlemagne, The Economist print 1 February 2014
Fem år sedan börsen bottnade efter Lehman Brothers kollaps.
Den 15 september 2008 kollapsade investmentbanken Lehman Brothers. Den finansiella storm som successivt hade tilltagit i styrka sedan våren 2007 övergick då i full orkan.
Uppgången på Stockholmsbörsen summerar till 125 procent.
Dagens industris Oscar Karlsson, 2013-11-21
Början på sidan
"One thing that shocked me is that
not only did the Federal Reserve's very sophisticated model completely miss (the Lehman crash on) September 15th, 2008,
but so did the IMF, so did JP Morgan, which was forecasting American economic growth three days before the crisis hit, going up all through 2009 and 2010."
Alan Greenspan, BBC, 20 October 2013
There is a difference between predicting economic bubbles, and predicting when they might burst, he said.
I bankvärlden är förändringen före och efter Lehman Brothers krasch dramatisk.
Då: En sektor beroende av pengar varje dag för att överleva.
I dag: Betydligt starkare banker, väl förberedda på nästa skandal och med målet att faller en ska resten stå starka.
Carolina Neurath, SvD Näringsliv, 13 september 2013
Anniversary of that Lehman collapse, is the system any safer or saner?
The good news is that the chance of another full-blown banking crisis has receded
The bad news is that the system is just as insane – perhaps more so.
Gillian Tett, Financial Times, September 12, 2013
Are you a Russian company with deposits in Cypriot banks?
Do you feel safe? Do you read newspapers?
One of the mysteries of the Cyprus debt crisis is why non-resident deposits aren’t moving out of the country.
Masa Serdarevic, FT Alphaville 11 February 2013
(She started her career in the investment banking division at Lehman Brothers in the summer of 2007,
timing it perfectly with the beginning of the credit crunch.
She studied philosophy, politics and economics at Oxford University)
She started her career in the investment banking division at Lehman Brothers in the summer of 2007, timing it perfectly with the beginning of the credit crunch.
When the bank collapsed she was pictured walking out of the the building with a box of her belongings.
The picture somehow made it to the front of various newspapers, and has seemingly since become a stock image used by picture desks to illustrate anything from greedy bankers to the victims of capitalism.
Her friends briefly nicknamed her “the face of the credit crunch” but fortunately it didn’t catch on.
Lehman Brothers och eurokrisen
Om man gör anspråk på att förstå politikens utveckling måste man äga förmågan att ställa sig mitt i de virvlar som fem krafter skapar tillsammans.
Det är med andra ord fullt möjligt att vara världsledande inom nationalekonomi, bankväsendet eller finanssystemet,
och ändå göra bedömningar som inte hamnar i närheten av det facit som verkligheten småningom erbjuder.
Roland Poirier Martinsson, Kolumn SvD ledarsida 7 november 2011
När Lehman Brothers ansökte om konkurs var en vanlig reaktion bland svenska finansmänniskor att händelsen var oväntad och obegriplig. Varför räddades inte Lehman av det politiska systemet, allt annat var ju ekonomiskt vansinne? Jag blev förvånad. Min egen bedömning hade nämligen varit den motsatta, att det varit osannolikt att staten skulle rädda Lehman. Hur kunde vi nå så olika slutsatser?
Hösten 2008 bestod i en serie kraftmätningar mellan de krafter som avgör politiska beslut i demokratiska länder: folkets tolkning av skeendet, politikernas manövrering, experternas rekommendationer, mediernas narrativ och det enskilda landets politiska ramverk och traditioner.
Början på sidan
How to save the eurozone
Teaching investors a lesson is a wish not a policy.
US policymakers were applauded for about 12 hours for their willingness to let Lehman go bankrupt.
Lawrence Summers, Financial Times, 18 July 2011
Why 9/15 changed more than 9/11
Two years have elapsed since the collapse of Lehman Brothers
triggered a global financial crisis and provoked fears of a new Great Depression.
Gideon Rachman, FT September 13 2010
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U.S. regulators did not grant Lehman Brothers the same assistance as its competitors,
knocking out the possibility of an orderly unwind of the firm and aggravating the global crisis,
former Lehman Chief Executive Dick Fuld said
CNBC 1 September 2010
Fuld focused on Sunday, Sept. 14, 2008, when he said Lehman was mandated by government regulators to file for bankruptcy before the Asian markets opened the next day.
That same Sunday, the Fed expanded for investment banks the types of collateral that would qualify for borrowings from its discount window, Fuld said.
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Bernanke also said it was impossible for the Fed to rescue Lehman Brothers from bankruptcy in 2008
because the Wall Street firm lacked sufficient collateral to secure a loan.
Lehman's former chief executive told the panel a day earlier that the firm could have been saved, but regulators refused to provide help.
CNBC 2/9 2010
Former Treasury Secretary Hank Paulson admitted that saying Lehman Brothers would not get a government bailout was a ploy in the negotiations
His new book on the financial crisis,
"On the Brink: Inside the Race to Stop the Collapse of the Global Financial System."
CNBC Feb 2010
The Basel regime (European and American banks use either version 1 or 2) represents a monumental, decades-long effort at perfection, with minimum capital requirements carefully calculated from detailed formulae.
The answers were precisely wrong.
Five days before its bankruptcy Lehman Brothers boasted a “Tier 1” capital ratio of 11%, almost three times the regulatory minimum.
The Economist print Jan 21st 2010
Bankers had cashed in before the music stopped
In 2000-07, the top five executives at Bear and Lehman pocketed cash bonuses exceeding $300m and $150m respectively
Lucian Bebchuk, Alma Cohen and Holger Spamann FT December 6 2009
The writers are affiliated with Harvard Law School’s corporate governance programme, which issued their study, “The Wages of Failure: Executive pay at Bear Stearns and Lehman 2000-2008”. Although Mr Bebchuk is a consultant to the US Treasury’s office of the special master for Tarp executive compensation, the views expressed should not be attributed to that office
The need to reform pay structures is not, as many have claimed, simply a politically convenient sideshow. Even if the type of incentives given to executives of Bear and Lehman – and others with similar pay structures – were not the cause of risk-taking in the past, they could be in future. Financial institutions, and the regulators overseeing them, should give the necessary priority to redesigning bonuses and equity-based compensation to avoid rewarding executives for short-term results that are subsequently reversed.
Chuck Prince, the former chairman and chief executive of Citigroup
Note that he did not say “if” the music stops but “when”.
Read more here
At Lehman, the top five executives received cash bonuses and proceeds from stock sales
totaling $1 billion between 2000 and 2008,
and at Bear, the top five received more than $1.4 billion,
according to Harvard Law School.
CNBC 23 Nov 2009
Program on Corporate Governance at Harvard Law School
As a result of Lehman’s bankruptcy, millions of people have needlessly lost their jobs, hundreds of thousands of homes have been needlessly repossessed and trillions of dollars, pounds and euros have been needlessly added to the debt burdens of governments around the world.
I repeat that word needlessly because most of these losses would not have happened if Lehman had been supported or wound down in an orderly way.
Anatole Kaletsky, The Times, September 18, 2009
Anyone who believes that stabilising Lehman was financially or politically impossible should note that the US Treasury bailed out the insurance group AIG at far greater public expense 24 hours later, when AIG’s potential failure threatened the survival of J.P. Morgan and Goldman Sachs.
Why a Lehman deal would not have saved us
Niall Ferguson, FT September 14 2009
The critical point is that, like Bear Stearns, Lehman was just an extreme case of a general phenomenon. A relatively small number of very large financial institutions had become dangerously leveraged and were on a fast track to insolvency as their property investments imploded. Reliant on misleading risk-management models, and counting on the vastly over-extended insurer AIG to pay out if their counterparties defaulted, they were like lemmings in a line, going over the cliff one by one – or rather being pushed off by short-sellers.
Många bedömare anser att amerikanska myndigheter gjorde ett misstag när man lät Lehman Brothers gå i konkurs förra hösten.
Pehr G Gyllenhammar, vice ordförande i Rothschild Europe, inte lika säker.
I fallet med Lehman Brothers kan det i stället ha varit så att bankens kollaps faktiskt fick amerikanska aktörer att inse allvaret i situationen.
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Årets vändpunkt var förmodligen Bush-administrationens beslut
att inte rädda investmentbanken Lehman Brothers.
DN 2008-12-30 Erik Ohlsson
Klockan 18.00 sitter närmare trettio kostymklädda män runt ett ovalt bord i ett konferensrum på bottenvåningen i Fed-byggnaden. De har samtliga en plats i finansvärldens "Vem är det". Här finns bland andra Jamie Dimon, vd för JP Morgan, John Thain, hans kollega på Merrill Lynch och Ken Lewis, vd för Bank of America. Henry Paulson sitter i mitten och har Christopher Cox, chef för USA:s finansinspektion SEC bredvid sig. Mittemot sitter Timothy "Tim" Geithner, chef för Feds New York-avdelning.
Det är tyst i rummet, sånär som på tunnelbanan som bullrar fram alldeles under fastigheten och får rummet att vibrera. Paulson tar till orda och säger med lidelse och eftertryck att det inte kommer att erbjudas någon statlig hjälp till Lehman.
Carl Bildt vill lägga ned det svenska generalkonsulatet i New York.
Det vore bättre affär att söka lämpliga New York-advokater som mot vinstandel är beredda att
väcka talan mot amerikanska staten med krav på skadestånd för »gross negligence« i Lehman-konkursen.
Tomas Fischer, Fokus 12 juni 2009
The era that defined Wall Street is finally, officially over.
Michael Lewis December 2008 Issue
Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
Tuesday, October 9, 2007 started as a nice day in New York City.
A lovely early fall day, with the temperature still a balmy 80° at 2:00 in the morning. By evening, though, the temperature had dropped twenty degrees, the clouds had rolled in, there was thunder and rain.
As with the weather, there were some hints of trouble here and there on Wall Street. But all in all, things could not have seemed better. Little did we know, the stormy end of 10/9/07 signaled a very large bubble that had just popped.
That was the day when the Dow Jones Industrial Average hit its historic peak.
From there, it was all downhill -- slowly but steadily at first, and then violently after last August -- until the Dow bottomed (for now) on March 9 of this year. Over that span, the index lost 54% of its value.
During the late, great housing boom, interest rates were at microscopic levels, while bankers were encouraged to grant home loans on little more than a wink and a nudge. In order to inflate their balance sheets, those bankers resorted to all sorts of gimmicky, adjustable rate mortgages (ARMs), whose common feature was an interest rate that would eventually reset. That is, it would balloon somewhere down the road.
And those most likely to come quickly to grief were the riskiest borrowers, who held loans known as “subprime.”
For a while, this Ponzi scheme even worked. But then, as they had to, the ARMs began resetting, and there were defaults. Then more of them. Because at the same time, the housing market was cooling off and the economy was stalling out. More and more people were trapped in a situation where they owed more on their home than they could sell it for.
Many simply mailed their keys to the bank and moved on.
All of this wreaked havoc in the derivatives market.
Financial Crisis Time Line by Federal Reserve Bank of St. Louis
Source: Doug Hornig, Editor, BIG GOLD, Thursday, 28 May 2009
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On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection.
The filing marked the largest bankruptcy in U.S. history.Lehman Brothers
From Wikipedia, the free encyclopedia
The Rise and Fall of Lehman Brothers.
A History that Goes Beyond the Great Depression.
Dr Housing Bubble September 15th, 2008
Explaining the fall of Lehman Brothers
Monday, September 15th 2008, 1:34 PM
Lehman Brothers i konkurs
DI 2008-09-29 14:39
TALARE Riksbankschef Stefan Ingves
PLATS Nationalekonomiska föreningen, Stockholm
När den amerikanska investmentbanken Lehman Brothers i september förra året tvingades ansöka om konkursskydd, fick det omfattande återverkningar över stora delar av världen. Den globala finanskrisen eskalerade, och även de svenska bankerna påverkades i allt större utsträckning. När förhållandena på de globala finansmarknaderna försämrades, ökade kreditriskpremierna generellt. För de låntagare – banker eller länder – som bedömdes vara mest riskfyllda, ökade premierna mer än för andra. En process för att dra ner exponeringarna och minska skuldsättningsgraden startade bland banker och andra finansiella institut världen över. Den snabbt minskande utlåningen förstärkte tillbakagången i den globala konjunkturen. Nedgången i den ekonomiska aktiviteten spädde i sin tur på utvecklingen med kraftiga fall i tillgångsvärden och ökade kreditförluster för bankerna. Det uppstod vad vi kan kalla en ond spiral i världsekonomin, där den finansiella oron förstärkte den realekonomiska försvagningen och vice versa.
”Bortset från frågan om Lehman skulle ha räddats eller inte, den verkliga frågan är: varför gjordes inte mer mellan Bear Stearns bailout och Lehmans död för att skydda systemet från den risk som Lehman uppenbarligen utgjorde?”
Maybe it was errors at the US Treasury, particularly the decision to let Lehman fail, that triggered today’s panic.
Martin Wolf, FT, October 7 2008
Efter Lehman Brothers konkursansökan i mitten av september ströps kreditflödena.
Ingen hade väntat sig att en så betydande bank kunde fallera och oron steg för att fler aktörer skulle hamna i en liknande situation.
Utlåningen mellan världens banker upphörde nästan helt.
Stefan Ingves, DN Debatt 31/12 2008
Why not increase your buying power by borrowing 30 times your actual capital, as Lehman Bros. did before its collapse,
when you could borrow at an interest rate below the inflation rate, thus ensuring that, in real terms,
you paid back less than you borrowed? After all, the bull market, fueled by this borrowing, virtually guaranteed a profit.
Jim Jubak 2008-10-31
Let me tell you why I think we're looking at something other than a normal recession and what that means for investors.
Recessions are a normal part of the capitalist business cycle. Recessions wash out excesses in the system by shaking out inefficient companies, thus clearing the way for new competitors, and they work to keep supply and demand in sync over the long term.
In the past 50 years, we've had recessions (or recessionlike economic downturns) in 1969-70, 1973-75, 1980-82, 1990-91 and 2001.
The standard medicine for a recession is more government spending on infrastructure (roads and bridges), an extension of unemployment benefits to prop up demand (and relieve suffering), grants to cities and states so they can keep spending and not add to the recession with their own set of cutbacks, and interest-rate cuts.
However, the amount of money Congress is talking about -- and the amount in the first stimulus package (remember those checks that some of us got?) -- is small compared with the amount that the credit crunch has taken out of consumer buying power. Add to that the flip side of the wealth effect -- people spend less when their houses and stock portfolios are worth less -- and you can see why this recession is a lot more likely to look like the long recessions of 1973-75 and 1980-82 than the blink-and-they're-over recessions of 1990-91 and 2001.
As for interest-rate cuts, the Federal Reserve has already cut the federal funds rate to 1%. However, with the financial markets recovering but still ruled by fear, low rates from the Fed are largely irrelevant.
Ingen västerländsk bank vill ligga ute med pengar över årsskiftet. För en bank som vill låna pengar i tre månader eller längre finns det därför snart ingen kvar att låna av.
Därför tvingades Riksbanken i går gå in och förse de svenska affärsbankerna med tremånaderslån på upp till 60 miljarder kronor.
Bankerna i flera länder får allt svårare att finansiera sig långfristigt. Konkursen i Lehman Brothers och oron kring krispaketet i USA gör att de som har pengar drar sig för att låna ut dem.
If September 11, 2001 was the day that we had to reassess our ideas about America's role in world politics,
September 15, 2008, the day Lehman Brothers went bankrupt, may well be remembered as the day we had to reassess our ideas about America's role in the world economy.
Anne Applebaum, Daily Telegraph, 28/9 2008
September 11 inspired a national display of unity: Americans mourned together, waved flags together, supported their politicians' attempts to come up with a proper response
September 15, by contrast, divided Americans, immediately and bitterly.
I don't think there's been such a torrent of abuse lobbed at Wall Street since the 1930s. "Greedy" was the nicest thing being said about the "speculators" and "asset-strippers" who are reckoned to have caused the whole mess.
The fury reached a pinnacle on Friday when Congress suddenly rebelled and refused to rubber-stamp the proposed $700 billion deal. Surely the climax of the day, and possibly the low point in the eight years of the Bush administration, was the moment when the Treasury Secretary, Henry Paulson, got down on his knees in front of Nancy Pelosi, the Speaker of the House of Representatives, and begged her not to block the plan.
It's that cataclysmic, that decisive, that irreversible.
Since the collapse of Bear Stearns just over a year ago, the government has bailed out financial institutions whose failures threatened the broader financial system
(with the exception of Lehman Brothers).
LEE C. BUCHHEIT and DAVID A. SKEEL Jr. NYT May 18, 2009
In explaining this approach, federal regulators have said that they lack the tools to prevent disorderly failures of such institutions. Bailouts have been the only alternative to bankruptcy filings that can have dangerous effects on the rest of the economy.
But why not adopt an approach that would, where necessary, allow the controlled failure of a major financial institution?