When Lehman failed in September last year, what we know was that the US government realized they couldn’t bailout yet another financial institution. And talks of how the worst crisis since the Great Depression began revolves around this Lehman bankruptcy.
But now, another player is entering the picture: the UK government who blocked British bank Barclays from rescuing the ailing investment bank and believed the US would be there to follow Bear Stearns, Fannie and Freddie with another.
The Guardian reports:
In London, the Treasury, the Bank of England and the Financial Services Authority all believed that the US government would step in with a financial guarantee for the troubled Wall Street bank. The tripartite authorities insist that they always made it clear to the Americans that a possible bid from Barclays could go ahead only if sweetened by US money.
But in Washington, the former Treasury secretary Hank Paulson has blamed Lehman’s demise on Alistair Darling’s failure to let Washington know of his misgivings until it was too late. Paulson has told journalists that during a transatlantic phone call the chancellor said he was not prepared to import the American “cancer” into Britain – something Darling strongly denies.
It’s probably pointless to now talk about who caused what. One year into this crisis, focus must be on how to proceed to ensure that recovery comes at the soonest time and any policies put in place would not be there to hinder it. But it still makes for an interesting conversation.
The string of bailouts from Uncle Sam was perhaps another reason why the UK government wasn’t too worried on letting the Lehman-Barclays deal fall through.
The UK tripartite authorities – the FSA, the Bank of England and the Treasury – had expected the US government to stand behind Lehman in the way that it had backed two crucial mortgage lenders the previous week and helped to orchestrate the bailout for Bear Stearns in March.
Apparently, they were wrong. The thing is, maybe Lehman had to happen. If this crisis were any milder, there wouldn’t be such a significant reaction to the mistakes that have plagued the financial system and we probably wouldn’t be this close to the kind of reform we are seeing now than if Lehman lived.