Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Lehman Downfall Triggered By Mix-up Between London And Washington

Recommended Posts

http://www.guardian.co.uk/business/2009/se...pse-us-uk-blame

A breakdown in communications at the highest level between the US and the UK led to the shock collapse of the investment bank Lehman Brothers in September last year, a Guardian/Observer investigation has revealed.

The downfall of Lehman, which triggered the biggest banking crisis since the Great Depression, came after a rescue bid by the high street bank Barclays failed to materialise.

In London, the Treasury, the Bank of England and the Financial Services Authority all believed that the US government would step in with a financial guarantee for the troubled Wall Street bank. The tripartite authorities insist that they always made it clear to the Americans that a possible bid from Barclays could go ahead only if sweetened by US money.

But in Washington, the former Treasury secretary Hank Paulson has blamed Lehman's demise on Alistair Darling's failure to let Washington know of his misgivings until it was too late. Paulson has told journalists that during a transatlantic phone call the chancellor said he was not prepared to import the American "cancer" into Britain – something Darling strongly denies.

With finance ministers and central bank governors from the G20 countries meeting in London on Saturday, the first-hand accounts of those handling last year's events underline a rift between London and Washington over who was to blame for the demise of Lehman, which triggered a month of mayhem on the financial markets.

Lehman's demise sent shock waves around an already fragile financial system and raised fears that any bank, anywhere in the world was vulnerable to collapse. Within three days, HBOS had been rescued by Lloyds TSB. A month later RBS, HBOS and Lloyds were propped up with an unprecedented £37bn of taxpayer funds.

Hector Sants, the chief executive of the Financial Services Authority, said: "I have sympathy for the US authorities given the complexity of the problems they faced that weekend but I do believe it was a mistake to let Lehman's fail." As well trying to find a solution for Lehman, the US authorities were also aware that Merrill Lynch was on the brink and that weekend it was taken over by Bank of America.

While admitting the UK authorities had botched Northern Rock a year earlier, Sants said the collapse of Lehman had more dire consequences. "Without the future market shock created by Lehman Brothers' collapse, RBS may not have failed," said Sants.

"Was Lehman the cause or was it the manifestation? It was our view that if Lehman had been supported you would not have seen such a dramatic reduction in liquidity."

Sir John Gieve, deputy governor of the Bank of England last September, said: "It was a catastrophic error. It caused a loss of confidence in the [uS] authorities' ability to handle the financial crisis which really did change things and proved hugely costly."

The UK tripartite authorities – the FSA, the Bank of England and the Treasury – had expected the US government to stand behind Lehman in the way that it had backed two crucial mortgage lenders the previous week and helped to orchestrate the bailout for Bear Stearns in March.

No explanation has ever been given for the lack of government funds offered in the final weeks of the Bush administration, which had to step in to prop up the insurance company AIG days after Lehman's demise.

I thought it was because Goldman didn't want to save a competitor? Too cynical?

Share this post


Link to post
Share on other sites
I thought it was because Goldman didn't want to save a competitor? Too cynical?

no, spot-on iirc.

edited - wasn't it payback for that huge bank failure in the 90's (which name eludes me LHsomething :rolleyes: ), lehman didn't come to the rescue, so Goldman did the same.

Edited by grumpy-old-man-returns

Share this post


Link to post
Share on other sites
now they are BLAMING each other.....

soon time for the reckoning

anyone starting to get the feeling that we are being cut loose and set adrift?

Edited by richyc

Share this post


Link to post
Share on other sites
anyone starting to get the feeling that we are being cut loose and set adrift?

ADVERT

Poodle ( answers to the name of Tony) needs a good home.

likes to be stroked by powerful master, willing to bite on command.

Share this post


Link to post
Share on other sites
anyone starting to get the feeling that we are being cut loose and set adrift?

Dangerous game, if we go pop like Iceland I think it will trigger huge problems in the US.

Too much cross investment, although I wouldn't rule it out.

Share this post


Link to post
Share on other sites
no, spot-on iirc.

edited - wasn't it payback for that huge bank failure in the 90's (which name eludes me LHsomething :rolleyes: ), lehman didn't come to the rescue, so Goldman did the same.

I think you are thinking of Bear Stearns. They famously wouldnt help with the bailout of the LTCM hedge fund in the 1990's when that went belly up.

This article about Lehman's appears to be an attempt to blame the governments for the demise of Lehman's. Perhaps they want to try and get the taxpayer to make good the losses of the creditors.

Little chance of that of course, but worth a try.

Lehman's went bust because it was levered over 30:1. I dont have the exact figure. Then when confidence was lost, all funds were withdrawn. Confidence was lost because it was full of real estate assets.

The decision by the Government not to help, was a very wise one. There is a lot to be said for sitting on your tod and doing nothing.

Share this post


Link to post
Share on other sites
no, spot-on iirc.

edited - wasn't it payback for that huge bank failure in the 90's (which name eludes me LHsomething :rolleyes: ), lehman didn't come to the rescue, so Goldman did the same.

that was Bear Stearns that refused to stump up for LTCM, not Lehman.

Share this post


Link to post
Share on other sites

They seemed to have missed a bit - the whole damned run up that caused this mess.

That was the problem, not the piffling and presentation of the mess, which is what they are arguing about here.

Dreadful. Pack of useless charlatans.

Share this post


Link to post
Share on other sites
They seemed to have missed a bit - the whole damned run up that caused this mess.

That was the problem, not the piffling and presentation of the mess, which is what they are arguing about here.

Dreadful. Pack of useless charlatans.

this is true, but now its time for the blame and chat shows and manager sackings...the players themselves have showered and gone home.

Share this post


Link to post
Share on other sites
anyone starting to get the feeling that we are being cut loose and set adrift?

I actually think its a bit of the opposite, the so called 'Special relationship' is less profitbale for the UK now and i think the British have one eye on future partners in the East and are quite willing to not provide tacit support to the US anymore. It was worthwhile being in the slipstream of the US while they were the biggest kid on the block but things are changing.

I definitely agree it is a worrying sign that the finger pointing is becoming very public,

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.