It's been two years since Lehman Brothers failed (Sept. 15, 2008), and we still can't conclusively answer this question: what if the government had saved Lehman? Its bankruptcy was pivotal.
Until then, deteriorating housing and mortgage markets had triggered what seemed a serious—but not unprecedented—recession. Once Lehman failed, the economy went into a frenzied free fall. It's hard not to wonder whether some of the ensuing turmoil could have been avoided. Consider what happened after Lehman:
Credit tightened. Banks wouldn't lend to each other, except at exorbitant interest rates. Rates on high-quality corporate bonds went from 7 percent in August to nearly 10 percent by October.
Stocks tanked. After its historical high of more than 14,000 in October 2007, the Dow Jones industrial average was still trading around 11,400 before the bankruptcy. By October, it was about 8,400; by March 2009, 6,600.
Consumer spending and business investment (on machinery, computers, buildings)—together about four-fifths of the economy—declined sharply. Already-depressed vehicle sales fell a third from August to February.
Employment collapsed. Five million payroll jobs disappeared in the eight months following Lehman's collapse. The unemployment rate went from 6.2 percent in September to 9.5 percent in June 2009.
Lehman's failure had dire consequences because it suggested that government had lost control.
No one knew which financial institutions would be protected and which wouldn't; AIG soon received a massive loan. Uncertainty rose; panic followed.
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4 comments:
Preventable ? It was done intentionally ! All to get us to the point where Government completely takes over !
9:20
You literally took the words from my mouth! It was done intentionally.
All one has to do is follow the money...who ended up with all of it and who wields the power? B - I - N - G - O. Hint: it ain't "the people".
Probably not.
The biggest thing going on in the world is the 2.5 billion people from third world countries coming into the global work force, mostly in manufacturing. We've lost 12 million manufacturing jobs in the past 10 years in the USA. We replaced them with residential construction jobs,jobs and profits in the finance industry, along with easy credit. These three replacements are now gone.
Obama is trying to prop things up with govt. spending. Won't work in the long run.
What's the next big thing?
I have no idea, but it has to be something that cannot be done more cheaply overseas.
Ross Perot spoke of the giant sucking sound of jobs leaving the country in the 1992 election against Bush and Clinton.
He was right.
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