Could Panic Of '08 Have Been Averted?

IBD Editorials ^ | September 10, 2010 | ROBERT J. SAMUELSON

[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.

[RipSawyer]

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

[nickcarraway]

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.

[A.Hun]

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.

[nickcarraway]

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

[nickcarraway]

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

[nickcarraway]

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