What Did You Do In the Panic of '08, Daddy?

The Panic of 2008 seems to have settled down for now, which has given us all a chance to take a breath and figure out what to do now that "Wall Street as we know it" has ceased to exist, and the finance system we have all known - a regulatory scheme developed in the 1930's married to a business model developed in the 1980's - has clearly lost its nerve. 

Michael Lewis and David Einhorn have written an excellent essay to that does a good job telling us where we've been, what happened in the Fall, and where we should go. I was going to comment on it, but it's so comprehensive that you should just read the whole thing.

One thing I will say is that Lewis and Einhorn are absolutely correct in saying that the death of Lehman Brothers was not a "mistake," as a lot of Monday morning quarterbacks have claimed. Lehman deserved to go out of business; there were glaring and obvious problems in its balance sheet which were stoutly denied. Richard Fuld spent the entire spring and summer of 2008 refusing to acknowledge reality and sell Lehman, until the end, when his shareholders and employees had lost everything. The real problem was the endgame. Lehman was allowed to go bankrupt in a precipitous and chaotic manner. Rather than a bloody execution, Lehman should have been allowed to drink some hemlock (nationalization followed by a quick sale with gov't guarantees of bad assets) and slowly slip the bounds of earth