In 2008, the collapse of Lehman Brothers triggered a global financial crisis. A decade later, commentators are debating whether federal officials could have prevented the crisis by supporting Lehman as it did other banks soon afterwards.

Commentary from Lehman’s chief administrative officer on the day it closed its doors forever. ‘Speaking as someone who was on the inside looking out, the answer is clear: Lehman could have and should have been saved’

Realising that may sound self-serving he points to the the facts. ‘Lehman was refused assistance, it was explained weeks afterwards, because it lacked the collateral to secure a loan from the US Federal Reserve and the Fed was therefore barred from providing assistance. Many of us first heard that explanation from the then-Fed chairman Ben Bernanke at the Economic Club of New York in October 2008′

He continues, ”by way of context, Lehman had delivered record net revenues and earnings in 2007, giving it the second-best revenue and earnings growth in the industry over the previous five-year period. That year, net leverage was in line with that of our peer and by 2008, we had meaningfully reduced that leverage, increased our equity and expanded our liquidity pool”

“Were those numbers real, or were we cooking the books? Well, the three investigations over the past decade, including one by the Securities and Exchange Commission, have all concluded that our balance sheet valuations were legal. In other words, there was adequate collateral to secure a loan from the Fed after all”

It’s not as though Lehman sprang its need for support from federal decision makers at the last minute, leaving too little time to make a thoughtful decision. Quite the opposite. “In June, being on a call with Dick Fuld and several other top Lehman executives when then the president of the Federal Reserve Bank of New York, was ask to allow Lehman to become a bank holding company:

“Tragically, they said no, saying it would send the wrong message. Ironically, the Fed turned Goldman Sachs and Morgan Stanley into bank holding companies one week after Lehman filed for bankruptcy, sending the right message and giving them exactly what we had been denied”.

The decision to rescue Goldman and Morgan Stanley was instrumental in preventing the collapse of the entire financial system. Lehman could have been saved in exactly the same way at any point that summer which would have prevented the carnage the world experienced.

A bad decision was made because of suffocating political pressure. As we prepare for the next time a crisis happens and there will be a next time, even if it doesn’t look exactly like 2008  policymakers need to remember this lesson, learn from it and avoid an unnecessary repeat.

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