Camden

Government's Best Move in 2008? Letting Lehman Fail

For the most part I agree with the idea that it was a good idea to let Lehman fail. That decision ensured the financial system would have to come to grips with it's excessive leverage – the entire system FORCED to change it's ways. It must have been known that Lehman's failure would set off a cascade of asset sales to raise cash to pay down bad debts. In the long run the world's financial system will be MUCH stronger as a result. In the short term, we all suffer the effects of de-leveraging across all financial markets.

However, those that think it would have been a good idea to let AIG, CitiGroup, and other fail don't understand how that would have caused the default on many TRILLIONS of dollars of derivatives – perhaps a value grater than all the common stock on the planet. Seriously. The meltdown of those markets – which was a real possibility – could have wiped out most of the world's wealth and bankrupted many nations. Very, very ugly.

I'm of the opinion that our current situation is painful but healthy and bodes well for a stronger, much more stable, slower-growing world economy in the future.