The Ascent of History

When given the choice between facts and legend, we always print the legend. One of the legends that has arisen from the Panic of '08 was that the Fed's failure to bailout Lehman Brothers was the proximate cause of the stock market crash, and all that came after. Niall Ferguson tries to push back against the rising tide: Why A Lehman Deal Would Not Have Saved Us

If only. If only Lehman had been saved, there would have been no credit crunch. No near-Depression. The S&P 500 would not have sunk to 682 (its nadir last March). We would probably be back to 1,500 by now.

If only Lehman had been saved, Republicans might muse, there would have been no Democratic landslide in November’s US elections. Instead of President Barack Obama, we would have John McCain in the White House. After all, the presidential race was still pretty close in the summer of last year. It was the severity of the economic crisis after September 15 that really doomed Mr McCain – not least because he himself had earlier confessed his ignorance of economics.

A McCain presidency, of course, would have had very different priorities: no Keynesian stimulus bill, no “public option” in any healthcare reform. If only Lehman had been saved, there would be no threat of Obamacare and no town hall hysteria about socialist “death panels”. Why stop there? If only Lehman had been saved and Mr McCain had won, the Green Revolution in Iran would have had American support and Mahmoud Ahmadi-Nejad would no longer be president.

If only Lehman had been saved and the stock market had not tanked, Michael Jackson would not have needed to commit to those 50 comeback gigs in London. He would not have felt so stressed and would not have taken all those sedatives. If only Lehman had been saved, Jacko would still be alive.

If only.

Not only that, Annie Liebowitz wouldn't have mortgaged herself to the hilt, resulting in querelous stories in the NY Times "Arts & Leisure" column, as if the troubles of a Celebrity Photographer amount to a hill of beans.

The danger of "If Only" is we will forget why Lehman Brothers deserved its fate. Its executives actively lied about the state of Lehman's prospects and balance sheet for months leading up to the bankruptcy filing. Rather than doing what they could to save their firm in the wake of Bear Sterne's near-death, Lehman continued as if there were nothing wrong. 5 months were wasted on happy talk and denunciations of short sellers. Why in the world should they have been bailed out?

The only regret we should feel is in the chaotic manner in which Lehman went bankrupt. If GM and Chrysler could be hand-held through a BK, why not Lehman? But to blame the Crash on that is to ignore the dramatic failure of financial institutions on multiple fronts. As Ferguson points out, there was a lot more going on than Lehman. Surely, the bailout of Fannie/Freddie (when the government's long-standing implicit guarantee turned explicit) and the shadow bailouts enabled by AIG were more dramatic, but the government would just as soon not focus on THAT, and in fact, those are already fading from memory, and becoming more institutionalized by the day.