A Sunday Without a Bailout? How Novel !
Asian markets are now open, and nary a Lehman bailout in site. (Nikkei Dow is closed)
Before you start congratulating the powers that be over their restraint, understand why there is no such rescue plan in place. My comments earlier this week in Slate:
To be eligible for a bailout, firms must also demonstrate a particular genius for screwing up. Before it went bust, Bear Stearns had a monstrous $33 of debt for every dollar of capital, and hedge funds it owned destroyed hundreds of millions of dollars of clients' cash. It got a bailout. Lehman Brothers, which has taken painful measures to reduce its risk, is perversely less likely to get direct government help. "The worst Lehman can do is destroy the firm," said Barry Ritholtz, CEO of Wall Street research firm FusionIQ and author of the forthcoming Bailout Nation. "Bear Stearns, on the other hand, set up the firm so that if they screwed up, they could threaten the entire financial system." That may explain why Treasury Secretary Paulson has thus far resisted providing federal succor to Lehman.
We will have more on this tomorrow, but that is the unfortunate takeaway, and precisely what Moral Hazard means.
IN a strange way, Lehman Brother is being punished for not being more reckless. (Although its probably why Barclays is kicking the tires).
More later this week...
Lemons, But No Lehman Aid
WHO GETS A GOVERNMENT BAILOUT?
Slare, Friday, Sept. 12, 2008, at 3:46 PM ET
Barclays May Bid for Lehman as Fed Seeks Solution
Ben Livesey and Yalman Onaran
Bloomberg Sept. 14 2008
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» Greenspan: Tough Decisions Await In Lehman Case from Unpartisan.com Political News and Blog Aggregator
Former Federal Reserve Chairman Alan Greenspan says the government may face a difficult choice as it [Read More]
Tracked on Sep 14, 2008 9:20:18 PM
Once again this quote is spot on...
“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this” Jim Rogers on Squawk Box Europe
Posted by: km4 | Sep 14, 2008 1:09:30 PM
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