The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve would not be sufficient to stop the crisis; substantial fiscal resources were necessary.
Sentiment: NEGATIVE
The failure of Lehman may have allowed the government to do more to prop up the economy than it otherwise could.
A Fed loan to Lehman Brothers would not have prevented a bankruptcy.
Among other objectives, liquidity guidelines must take into account the risks that inadequate liquidity planning by major financial firms pose for the broader financial system, and they must ensure that these firms do not become excessively reliant on liquidity support from the central bank.
The assumption that Washington could and would resolve Lehman Brothers without a bankruptcy, as it had Bear Stearns, was the single biggest mistake in the series of mistakes in 2007 and 2008 that led to the financial panic and the ensuing epidemic of job losses.
Financial crises require governments.
To be sure, the provision of liquidity alone can by no means solve the problems of credit risk and credit losses; but it can reduce liquidity premiums, help restore the confidence of investors, and thus promote stability.
We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers.
In truth, in the fairy-tale version of bailing out Lehman, the next domino, A.I.G., would have fallen even harder. If the politics of bailing out Lehman were bad, the politics of bailing out A.I.G. would have been worse. And the systemic risk that a failure of A.I.G. posed was orders of magnitude greater than Lehman's collapse.
The IMF is set up to deal with liquidity crises.
It is understandable that the Fed injects cash to avoid the collapse of the stock market, but basically it is bad policy for monetary authorities to intervene to save speculators from bankruptcy. This is not their role.
No opposing quotes found.