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Double Edge
15 May 14,, 23:21
Would the 2008 financial crisis have spread as far and as wide if Lehman Brothers were bailed out. As their failure started the ball rolling and the dominos falling.

Bailed out by who is the question ? Some USG org

Question then becomes what if there are others. How many bailouts is USG to cope with here. Where to draw the line. They did eventually do it. Just wondering whether acting sooner would have helped or not.

or did it all happen too fast to act and in the end what transpired was the only option.

DOR
05 Jun 16,, 10:30
Here's the timeline, as indicated by financial institutions borrowings from the Fed. Bear in mind that the data go back to January 1919, and average about $350 million, with almost nothing ever over $1 billion, even during the S&L crisis.

Jan 1 to Dec 5, 2007: Average $369 million
Dec 12 to Jan 16 2008: $3.51 billion --- The first serious indication that Something Broke.
Jan 23 to Mar 12: $230 million --- big sighs of relief at a bullet successfully dodged.
Mar 19 to Sep 10: $24.22 billion --- the origin of the phrase W. T. F.
Sep 17, 2008: Weekly average $47.97 billion
Sep 20: Lehman Brothers bailout
Sep 24: $187.75 billion
Oct 1: $367.80 billion
Oct 8: $420.16 billion
Oct 15: $437.53 billion
Oct 22: $418.58 billion
Oct 29: $388.81 billion

And on back to normal. By the week of January 26, 2011, borrowings had once again dropped below $1 billion, and that's where they have remained ever since.


I used weekly data above, but this has the entire series back to 1919

https://research.stlouisfed.org/fred2/series/BORROW

GVChamp
11 Jun 16,, 17:27
Basically, no. The financial crisis did not start with Lehman and had grown progressively worse for years. We had been trying to address this with various one-off bailouts and expansions of Federal Reserve lending programs, but we continued to run into more crises, progressively larger and progressively faster.

AIG was running out of cash the same time as Lehman, for instance.

Bailing out Lehman would have been another one-off bailout which would NOT have solved the fear behind the financial crisis. We needed a large package for the ENTIRE financial system. That means TARP, the bank stress tests, and the various lending programs the Fed implemented. For the ENTIRE financial system.

In retrospect, we should have let Bear Stearns fail. We weren't going to get TARP unless the entire system was about to collapse, and it was bound to happen sooner or later. Might as well get the pain done earlier.


Reading the Bernanke memoir, a system-wide approach would have not been politically feasible. Came at the wrong time politically. According to Ben, they would've saved Lehman too, but they really didn't have the authority, because Lehman was fundamentally insolvent. The taxpayers would have lost billions of dollars lending into an unknowable black hole. They would've absolutely lent money had Lehman any assets to justify the loan.
They publicly stated that they Lehman fail because they thought if they said "we couldn't save Lehman" would've provoked instantaneous market collapse.

Double Edge
25 Jun 16,, 00:26
Cheers, the timeline indicates the buildup since March. We only got to hear about it in Sept.

DOR
25 Jun 16,, 12:27
Cheers, the timeline indicates the buildup since March. We only got to hear about it in Sept.

In the six months before mid-September, average borrowings were $25 billion a week, more than 20 times the average of the previous six months.

The signs were there, but they were ignored.

Double Edge
25 Jun 16,, 13:24
In the six months before mid-September, average borrowings were $25 billion a week, more than 20 times the average of the previous six months.

The signs were there, but they were ignored.
I imagine deliberately so to avoid a panic and create time to craft a suitable response without unnecessary pressure.

This way they managed to put a lid on it