Except that Lehman’s sole objective is to sell everything it owns so it can repay its lenders and disappear. The reason it has taken so long (and will take many more years) is that selling off the pieces of a big investment bank is almost ineffably complicated. Banks have few physical assets, and they go fast. (Lehman sold its headquarters the day after its bankruptcy.) A bank’s main value is really just a huge pile of promises. Banks borrow money (often from other banks) and promise to pay it back; then they lend that money (again, often to other banks) on the promise that they’ll return it, too. Every bank could collapse if more than a small percentage of people ask for their money at once.
The system works because lenders have confidence that if there’s ever a run on a bank, governments and central banks will step in and limit the damage. Of all the financial calamity that Lehman inflicted on international markets, perhaps the most significant was that it came close to destroying that confidence. And one reason this sluggish economy persists is that investors still haven’t got it back.
Much of our continued distress, as measured in bond rates and fewer loans issued, comes down to a lingering fear that another bank (or for that matter, a country) could collapse. Lehman’s long unwinding has only worsened these fears. Like all big banks, Lehman was more like a loose agglomeration of hundreds of individual companies. Its bankruptcy affected thousands of subsidiary entities and triggered filings in 80 jurisdictions around the world. This led, immediately, to several conflicts. The now-separate divisions in
Why would anyone lend money to any institution if there was a chance, once trouble hit, that they would have to wait years to get
The F.D.I.C. now has the power to take over a huge holding company, sell off the healthy parts, and — in theory, at least — manage a careful wind down. Last year, the F.D.I.C. released a remarkable paper, “The Orderly Liquidation of Lehman Brothers Holdings Under the Dodd-Frank Act,” which lays out how the agency would have saved Lehman if it possessed those new powers at the time of the collapse. The F.D.I.C. would instantly dismiss existing management and force total losses on all the shareholders, but work hard to keep all other promises. It would create a “bridge bank,” a carbon copy of Lehman, run by regulators, that would maintain the company’s role in the global financial system while helping the company gradually disappear. By their own reckoning, the new powers would have meant far more money for creditors —
Most people in finance are glad that officials will have more options for taking on the next crisis, but the stingy lending environment suggests that they are not persuaded that the problem has been solved. While the law now requires the largest financial institutions to disclose all their important subsidiaries, it is up to each bank to decide which ones are important. The major banks have each disclosed a dozen or so firms, but still keep thousands of others — some of which might be carrying massive risk — hidden. The F.D.I.C. strategy also assumes that global regulators will happily cooperate as the U.S. government takes over a huge bank and eliminates the value of all its shares, including those owned by foreigners. The F.D.I.C.’s Lehman report deals with the massive challenge in one sentence: “The F.D.I.C. would have contacted the relevant foreign and domestic regulatory authorities and governments to coordinate the resolution.”
The main lesson of Lehman’s collapse is that the response to a troubled financial system is, ultimately, determined not by technical regulation, but by politics. The F.D.I.C. can use its new powers only after receiving the consent of the Treasury secretary. And its new powers pertain only to those banks deemed systematically important, a designation determined by political appointees. So while the F.D.I.C. is working to formalize the rules governing its new powers, investment-bank lobbying has grown by nearly 60 percent since the crisis began. Bankers learned that they need to be closer than ever to politicians.
Deep thoughts this week:
1. Lehman is still alive.
1.5. Sort of.
2. And few people have noticed.
3. Which is the best news possible.
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|Source:||New York Times Digital|