The Financial Times put together 3 experts to speak about lessons to be learned from this crisis. The three that were chosen include Jim Rogers, Meredith Whitney and Rodgin Cohen, Chairman of Sullivan & Cromwell. Among them, what stood out for me was Roger’s view (emphasis mine):
We need some more Lehmans so we can get out of this. Over the past 20 years Messrs Greenspan and Bernanke introduced crony capitalism to the West which is leading to a lost decade[s]. Market fundamentals are that failures should collapse and be replaced by creative new forces rather than being propped up as zombies. Financial institutions have been failing for centuries and the world has survived. Had the central bank allowed the failure of Long Term Capital Management to run its course, Lehman, Bear Stearns, et al would still be here. Everyone would have lost so much capital and fired so many incompetents that the madness of serial bubbles (dotcoms, housing, consumption etc) would never have occurred. Consider the alternative had they propped up the bankrupt Lehman. There would be even more of the same insanity in our central banks and governments than we have now. The idea that a problem of too much debt and too much consumption can be solved by more gigantic debt and consumption is ludicrous.Would that governments stop interfering with fundamental principles and let the market clean out mistakes! Marx is singing in his grave there in London as the US government now controls the auto, mortgage, insurance, banking, et al industries and he has not fired a shot. Letting Lehman fail was perhaps the only thing governments have done right during this whole drama.
I am one with Jim in thinking Lehman was necessary. And true enough, more big bank failures might have been needed. With only Lehman to remember, governments have already ironically forgotten about strong financial reforms, failing to capitalize on the faulty system and shady practices that prevailed on Wall Street. Maybe the damage that was done wasn’t enough. The interesting thing about life is, we never find out what would have happened had we had more bank failures. For all we know, even the failure of Bank of America, Goldman Sachs, Morgan Stanley, and JP Morgan wouldn’t have changed anything. It still would’ve been same ol’, same ol’.