“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.