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Could Panic Of '08 Have Been Averted?
IBD Editorials ^ | September 10, 2010 | ROBERT J. SAMUELSON

Posted on 09/10/2010 6:25:48 PM PDT by Kaslin

It's been two years since Lehman Bros. failed (Sept. 15, 2008) and we still can't conclusively answer this question: What if the government had saved Lehman?

Its bankruptcy was pivotal. Until then, deteriorating housing and mortgage markets had triggered what seemed a serious — but not unprecedented — recession. Once Lehman failed, the economy went into a frenzied free fall. It's hard not to wonder whether some of the ensuing turmoil could have been avoided.

Consider what happened after Lehman:

• Credit tightened. Banks wouldn't lend to each other, except at exorbitant interest rates. Rates on high-quality corporate bonds went from 7% in August to nearly 10% by October.

• Stocks tanked. After its historical high of about 14,100 in October 2007, the Dow Jones industrial average was still trading around 11,400 before the bankruptcy. By October, it was about 8,400; by March 2009, 6,600.

• Consumer spending and business investment (on machinery, computers, buildings) — together about four-fifths of the economy — declined sharply. Already-depressed vehicle sales fell a third from August to February.

• Employment collapsed. Five million payroll jobs disappeared in the eight months after Lehman's collapse. The unemployment rate went from 6.2% in September to 9.5% in June 2009.

Lehman's failure had dire consequences because it suggested government had lost control of events. No one knew which financial institutions would be protected and which wouldn't; AIG soon got a massive loan. Uncertainty rose; panic followed.

(Excerpt) Read more at investors.com ...


TOPICS: Business/Economy; Editorial
KEYWORDS: creditcrunch; economy; financialattack; financialcrisis; financialpanic; lehman; panic; runonthebanks; tarp

1 posted on 09/10/2010 6:25:49 PM PDT by Kaslin
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To: Kaslin

Attempting to save Lehman Bros, like the other “too big to fail” institutions was like putting a Band-Aid on an amputation.


2 posted on 09/10/2010 6:31:22 PM PDT by Calvinist_Dark_Lord ((I have come here to kick @$$ and chew bubblegum...and I'm all outta bubblegum! ~Roddy Piper))
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To: Calvinist_Dark_Lord

Since the “panic” of ‘08 was engineered to put -24bama in office, of course it could have been averted. But the opposition to him and his cronies were disorganized and easily outdone by the statists, media, and others. Besides, the earlier battles had already been lost and set the stage for the panic (ie: pick of McPain).


3 posted on 09/10/2010 6:38:48 PM PDT by C210N (0bama, Making the world safe for Marxism)
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To: C210N
Well, sure. The decades of lousy fiscal and monetary policy, leverage ratios of 30:1 or more, giving loans to anyone that could fog a mirror, massive debt, rampant corruption, market distortions due to government interference in natural recessions by sending false demand signals, and decades of pulling forward demand had nothing to do with it.

It was some sinister plot by unknown individuals that left no trace of their activities to elect a socialist instead of an almost-socialist.

In any case, Lehman was a symptom of a larger problem, not a cause.

4 posted on 09/10/2010 6:48:28 PM PDT by DaisyCutter
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To: Calvinist_Dark_Lord
There was no attempt to save Lehman Bros because the progressives needed a financial crisis in order to elect Obama. He was behind the idiot McCain up until that point.

I would love to water board Lehman Bros CEO to extract all info pertaining to the financial failure.

5 posted on 09/10/2010 6:48:35 PM PDT by W. W. SMITH (Islam is an instrument of enslavement)
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To: Kaslin
In truth, an informal consensus had formed against using government funds to save Lehman. Harsh criticism of the earlier rescue of Bear Stearns — done with Bush administration support and Fed money — had left a deep scar. The Financial Crisis Inquiry Commission has published e-mails reflecting the mood.

This is something I have believed since it happened....If Lehman had been bailed out, the TARP might not have been needed.

However, the horrible shape of our financial system would probably have assured a collapse for another reason anyway.

People will be second guessing this economic event for the next century.

6 posted on 09/10/2010 6:54:51 PM PDT by A.Hun (Common sense is no longer common.)
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To: Kaslin

yes. but you would have had to turn the clock back to 1989 to do it.


7 posted on 09/10/2010 7:00:51 PM PDT by the invisib1e hand (burn baby, burn.)
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To: C210N

Yup. The whole thing was set up using hedge fund shorts bear market attacks using credit default swaps. The attacks all went through the chicaho exchanges for options, futures and CDS too.

They just went down the list like shooting fish in a barrell. At the end they went after Morgan Staley and Goldman Sachs who ran to hank paulson and chris cox at SEC to stop it.

They came pretty close to taking Morgan Stanley out. The CDS insurance gets too expensive and it is game over on the debt the company owes.


8 posted on 09/10/2010 7:01:05 PM PDT by Frantzie (Imam Ob*m* & Democrats support the VICTORY MOSQUE & TV supports Imam)
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To: Kaslin
Could Panic Of '08 Have Been Averted?

Yes, but you would have needed to arrest George Soros.

9 posted on 09/10/2010 7:07:33 PM PDT by Lazamataz ("We beat the Soviet Union, then we became them." Lazamataz, 2005)
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To: Kaslin

Yes. If the Community Reinvestment Act had been repealed. But there was also FASB Rule 157 which caused banks and portfolio managers to cascade liquidations as the rules forced them to mark long term debt instruments to a collapsing value. And then there was Fannie and Freddie. I say a YouTube of Franklin Raines testifying that he could safely run his portfolio of home loans at 50x leverage because home prices never went down, and he was cheered on (and protected) by Bawney Fwank.

There were a number of these things that came within each other’s orbit all at roughly the same time and they spiraled in on each other. If a one or two had been missing, the collapse would have been less severe.

And if so many borrowers had not been willing to take out loans they knew they couldn’t properly service, this would have never started. I distinctly recall an ad running on KMOX in St. Louis for about a week advertising home loans without a need to verify income.

On that point, The National Community Reinvestment Coalition (NCRC) found that from 1997 to 2007, $4.7 trillion in home loans were made under this Act. In 2007, over 50% of home loans were made to people who would normally have not qualified for one. According to a Reuters’ story, “S&P now projects defaults on subprime loans issued in 2005, 2006 and 2007 at 11 percent, 30 percent and 49 percent, respectively.”


10 posted on 09/10/2010 7:13:31 PM PDT by theBuckwheat
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To: Kaslin

Bush hate was so entrenched on both the right and left and that point that the psychological warfare purchased by types such as George Soros and William Buffet could not be undone. Combined with oil market manipulations by anti-American zealots around the globe and a media eager to incite domestic bank panics, it was a done deal.

I still admire Bush for his leadership. He outbid the panic mongers with a nearly $800 billion bailout package and then quietly spent less than $350 billion once the panic had passed.

All of Bush’s bailout money has been paid back and paid back with 5% interest. No one ever wants to talk about those parts of the events.


11 posted on 09/10/2010 7:50:39 PM PDT by lonestar67 (I remember when unemployment was 4.7 percent)
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Comment #12 Removed by Moderator

To: lonestar67
All of [PRESIDENT] Bush’s bailout money has been paid back and paid back with 5% interest. No one ever wants to talk about those parts of the events.

I DO!!!

Bush’s $350 Billion TARP is About to Break Even by Gregory Hilton March 27, 2010 http://diplomatdc.wordpress.com/2010/03/27/bushs-350-billion-tarp-is-about-to-break-even-by-gregory-hilton/

Was the Bush TARP Program a Mistake? by Gregory Hilton March 28, 2010 http://diplomatdc.wordpress.com/2010/03/28/was-the-bush-tarp-program-a-mistake-by-gregory-hilton/

Another thing no one wants to talk about is the $550 BILLION draw down on our money market accounts on 9-11-08, which would have been $550 TRILLION had the Feds not shut it down.

They know where that money went...why is no one asking what off shore accounts all that money went to?

13 posted on 09/10/2010 8:04:46 PM PDT by Just A Nobody ( (Better Dead than RED! NEVER AGAIN...Support our Troops! Beware the ENEMEDIA))
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To: Kaslin

“No one knew which financial institutions would be protected and which wouldn’t;...Uncertainty rose; panic followed”

Many people much smarter and richer than I am have argued that gov’t tinkering was the root cause, and therefore the crisis either could have been avoided or would have been short-lived. This article seems to support that.


14 posted on 09/10/2010 8:09:55 PM PDT by MichaelCorleone
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To: lonestar67

It’s Warren Buffet not William. The bailout was a disgrace and it guaranteed another one will be coming down the pike. Why in God’s name will a banker worry about risk if he’s going to get bailed out. They’re just another version of welfare recipients sucking on the government teat.


15 posted on 09/10/2010 8:11:20 PM PDT by BiggieLittle
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To: A.Hun

TARP was not needed and made things worse. How can anyone even vaguely nonsocialist argue that Lehman should have been bailed out?


16 posted on 09/10/2010 8:29:54 PM PDT by nickcarraway
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To: nickcarraway
TARP was not needed and made things worse.

After nearly two years, it is widely credited with preventing a collapse of not only American commercial banks and underwriters, but European ones also.

Only a fool would prefer economic collapse, knowing that the rich never really suffer, and that the burden falls on the middle and lower classes. Being a member of the middle class, I was grateful for the reprieve. For the money spent, it was a bargain.

That being said, the TARP is something I wish had never been necessary, and it only gave us a reprieve, it did not solve the problem. The final day of reckoning is still to come.

Thirty or so billion to Lehman might have saved us 3-5 trillion, although that is just conjecture. It certainly was worth a try IMHO, instead of letting it fail and lead to a domino effect that created the need for TARP.

17 posted on 09/10/2010 9:00:16 PM PDT by A.Hun (Common sense is no longer common.)
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To: W. W. SMITH
I would love to water board Lehman Bros CEO to extract all info pertaining to the financial failure.

Why? He was just another party-hardy chump at the orgy, dancing around with a lampshade on his head and playing a little out of his league.

His company's bankruptcy, like Bear's, was an act of predation by Goldman and other, bigger players designed to remove a nuisance and narrow the, ah, "participation" in their grazing on Wall Street investors.

And if you don't know what I mean by that, you've got quite a bit of remedial reading to do.

It's like that old poker-party saw: If after fifteen minutes you haven't figured out who the patsy is, it's you.

The financial collapse was triggered by another play, anyway -- Soros's run (if you believe the rumors).

18 posted on 09/11/2010 2:00:27 AM PDT by lentulusgracchus
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To: Kaslin
Lehman's failure had dire consequences because it suggested government had lost control of events. No one knew which financial institutions would be protected and which wouldn't; AIG soon got a massive loan. Uncertainty rose; panic followed.

That's something for naive (particularly neoclassical-influenced) libertarians to mull over. Assuming a transition to a free-market economy can proceed seamlessly is assuming people act as if the government were irrelevant to the economy, except for discrete taxes, subsidies and prohibitions.

It's an easy trap to fall into for analytical minds, who like to break up human actions into components and assume one component doesn't spill over into another.

Regarding the overall point: the panic of '08 revealed a tiger by the tail. Government intervention has become pervasive, and we count on a lot of government guarantees without even realizing that we do.

19 posted on 09/11/2010 4:12:13 AM PDT by danielmryan
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To: Kaslin

“Curtis is a retired real estate developer in Easton, Pa. We are running his opinion in full because it is similar to that of many readers we hear from who believe that, contrary to those who question his ability and the wisdom of his policies, President Obama knows exactly what he wants to do and has been extraordinarily successful in doing it.”
////////////////////////////////////////////////////////////

I don’t see how anyone who has the slightest inkling of what is going on in the real world could come to any other conclusion than that, “Obama knows exactly what he wants to do and has been extraordinarily successful in doing it.” To believe that his intentions are benign but he just can’t do one single thing right is like believing that we actually live on the INSIDE of the Earth rather than the OUTSIDE. It requires a willful suspension of normal thought processes. It is amazing that so many seem to actually believe it, not that some think otherwise.

If those who still claim to believe in Obama should witness a person being stabbed to death would they believe that the assailant is trying to remove a cancerous tumor to save the victim’s life? It would be just as reasonable.


20 posted on 09/11/2010 8:13:00 AM PDT by RipSawyer (Trying to reason with a leftist is like trying to catch sunshine in a fish net at midnight.)
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To: A.Hun

“People will be second guessing this economic event for the next century.”
////////////////////////////////////////////////////////////

I don’t know the details and probably never will but one thing I WON’T be second guessing is the FACT that it was engineered on purpose.


21 posted on 09/11/2010 8:15:37 AM PDT by RipSawyer (Trying to reason with a leftist is like trying to catch sunshine in a fish net at midnight.)
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To: A.Hun
You can believe that if you want, but it makes you a socialist and anti-free market. You are allowed to be a socialist, but you should know it.

widely credited

Just like Obama is widely credited with being the best president ever. By the same people. It is widely credited as a success by the people who were responsible for it. In actuality, it has been prolonging the recession, and will probably make it worse. Extending the life of underperforming assets is not a good thing.

22 posted on 09/11/2010 9:58:51 AM PDT by nickcarraway
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To: nickcarraway
but it makes you a socialist and anti-free market.

Take a hike dumbass...because I don't want to live in poverty while a bunch of Austrian idiots sit on the sidelines and think big thoughts, doesn't make me a socialist.

We're talking business loans to prevent a wider collapse, a very capitalist solution. That's what TARP was, and a large portion has been paid back.

Giving trillions to the masses to hook them on the government teat is a different matter, as is rewarding your supporters with trillions of other taxpayer's money.

Extending the life of underperforming assets is not a good thing.

Total economic collapse is not a good thing either.

Photobucket

23 posted on 09/11/2010 1:15:03 PM PDT by A.Hun (Common sense is no longer common.)
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To: A.Hun

TARP made economic collapse more likely. Or are you one of those people who believe the economy has turned around since Obama became president?


24 posted on 09/11/2010 10:21:44 PM PDT by nickcarraway
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To: A.Hun

Individuals shouldn’t be bailed out by the government, but corporations headed by supposedly intelligent people should?


25 posted on 09/11/2010 10:23:15 PM PDT by nickcarraway
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To: A.Hun
Interesting that you have a picture of the Great Depression, when economic turmoil was prolonged for over a decade because of the the same kind of thing as TARP. It didn't work when Hoover and Roosevelt tried it, but anyone who thinks it won't work again is a, "dumbass."

Those who do not remember their past are condemned to repeat their mistakes - George Santayana

26 posted on 09/11/2010 10:28:37 PM PDT by nickcarraway
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