Wednesday, September 16, 2009

One year after Lehman

Great article in this week's Economist about the consequences of letting Lehman fail. Some finance and macroeconomics experts continue to insist that Lehman should have been bailed out and, if this had happened, there never would have been such a panic in financial markets a year ago. The counterargument is that Congress would never have given the Treasury and the Fed the power and funding to provide rescue packages to other financial institutions unless one had been allowed to fail.

The article relies heavily on the research of Harvard economist Ken Rogoff, who has a book coming out about financial crises over the last eight centuries. Interesting quote: "If you look at financial crises, the standard playbook is to let the fourth or fifth largest bank go under and
you save everybody else."

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