Jeremy Warner: US Treasury has run out of patience
Monday 15 September 2008
Like the passing of the dinosaurs, the great beasts of Wall Street are dying off, extinguished by what is now unambiguously the worst financial crisis since the Great Depression.
Until last night, it had been generally assumed that the US authorities would do whatever was necessary to prevent Lehman Brothers, one of the so-called "bulge bracket" firms of global financial markets, from going under.
After all, that's what they've done to date, by guaranteeing the country's two largest mortgage organisations, providing the wherewithal for an orderly takeover of Bear Stearns, and by making massive amounts of liquidity available to prop up the US banking system as a whole.
But finally the US Treasury seems to have run out of patience, and or money, and refused to provide the guarantees being demanded by Barclays and others as a condition for acquiring the stricken bank.
As a consequence, Lehman's is expected to file this morning for Chapter 11 bankruptcy protection, the equivalent of a UK administration.
It's a huge gamble for Hank Paulson, the beleaguered US Treasury Secretary. He was determined to draw a line in the sand at some point by saying to Wall Street "no more state bailouts".
But nobody knows for sure what the consequences of so doing might be. On the plus side, Lehman's is not a retail bank, so it will only be big wholesale investors and employees who will be damaged by its demise.
But it is a big provider of liquidity to markets, and with counterparties and creditors left high and dry, there's the risk of extreme collateral damage. Like falling dominos, there could be multiple bankruptcies through the financial system.
Mr Paulson's bet is that the damage will be containable, and that the collapse will prove cathartic, by stripping out capacity from the system and punishing the markets for the excesses of recent years.
- 1 What if 35 Palestinians had died, and 800 Israelis?
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 The secret report that helps Israel hide facts
- 4 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 5 Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
Disney heiress Abigail disowns her share of family profits in West Bank company
Man who had whole face transplant after being shot in the face becomes GQ star
'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
Richard Dawkins says 'date rape is bad, stranger rape is worse' on Twitter
Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
The secret report that helps Israel hide facts
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
- < Previous
- Next >
iJobs Money & Business
£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...
£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...
£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...
£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...