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To Big to Bail: Lehman Brothers is the Model for Fixing the Zombie Banks


“Systemic risk” is the boogeyman everyone is afraid of, yet Lehman failed and life has moved on.

We need to switch from from throwing more brains at the zombie banks to taking them down one by one in an orderly fashion. That’s what bankruptcy is all about, anyway. Let the system function!

Such a process as Lehman is painful and politically very difficult, but remember that nobody is surprised now. The definition of “systemic risk” is when markets are surprised, but these are political distinctions. Repeat after us: “there is no such thing as systemic risk,” at least that can be measured scientifically. SysRsk is a political concept, a manifestation of fear and uncertainty. As the Fox told the Little Prince: “All that is essential is invisible to the eyes.”

We all mostly understand the problem now. The swiftest and surest way to restore market confidence is to create solvent banks and begin the process of rebuilding the global markets for both finance and commerce. That is why we say that the competent and efficient handling of the Lehman Brothers liquidation by the US Trustee, SIPC, other state and federal regulators, and most important the professionals of the US Bankruptcy Court for the Southern District of New York is the model for dealing with the large banks.


Foreign governments own America.

I won’t go much into the Freddie/Fannie bailout (Which is just the latest in a long string of bailouts by the Federal Government) — it’s too depressing and so well covered elsewhere. For that matter, I’m just going to quote a salient point by an internet friend, Rolfe Winkler, who blogs under the ml-implode umbrella at Option Armageddon:

Folks, we don?t have the money. America needs to wake up and realize that we?re already bankrupt. The proximate reason for today?s bailout was that foreigners threatened to stop buying Fannie and Freddie debt. We?ve allowed ourselves to fall so deeply in debt to foreign nations that they are now driving U.S. economic policy. The deeper into debt we go, the more power foreigners will have.

That the U.S. is at the mercy of foreign governments is covered in more detail by Brad Setser here.

There’s little more to know than this: the leaders of this country have sold you out.