1. icarus said...

The Economist article 'From bail-out to bail-in' explains how the Lehman collapse may have been avoided but this collapse was part of a much wider problem that remains unresolved.

From http://gulagblog.com/?p=109762

The misleading of regulators, investors and the public did not happen in isolation. Like Enron, WorldCom, Tyco, Wachovia, Washington Mutual, Fannie/Freddie, CDOs, Bear, AIG, bond insurers, GM, Chrysler, CIT, California, Greece and the countless others wrapped up in this crisis, Lehman is symptomatic of a banking system bent on finding ways to hide risk from the investing public and regulatory community. Every time the truth was uncovered, investors fled and new investors demanded returns that compensated them for the new understanding of the known risks and for those that might remain hidden. In some cases, the cost of that new capital broke the firms.

Traditionally, banks and investment banks acted as principals or agents, matching capital in search of economic return with borrowers needing capital to earn a real return on economic activity. Today, they have turned to manufacturing artificial demand for financial products on false pretence. We have seen them act in such a manner on behalf of their debt-issuing clients. And in the case of Lehman, they have done so on their own behalf. We can expect that other firms used this and similar tactics to hide their true financial condition – firms that are still in business and, to varying degrees, massaging or manipulating their numbers.

It should be clear to all that a deeper examination of the relationship between all the audit firms and their clients on the issue of risk-obfuscation is needed. Limiting any inquiry to Lehman is inadequate.