Monday, October 3, 2011

One of the lessons we should have learned from 2008 was that the crises and financial meltdown was a true systematic failure. Currently the banks are fighting increased oversight and any attempt to reign in their risk appetite. One of the most powerful tools when someone wants to rewrite history is nomenclature. If you follow the business channels, the Wall Street Journal and other media outlets you will notice a subtle shift in references to 2008. Now everyone is talking about the Lehman collapse as if that was the major problem in 2008. This trivializes the event. Lehman was a major firm and part of the problem but it was not the only company to collapse. The list includes, Bear Stearns, Wachovia, Fannie Mae, Freddie Mac, Washington Mutual, Merrill Lynch, AIG, CIT, General Motors, MBIA, and AMBAC. Companies that came close to failing include Morgan Stanley, Citibank, Goldman Sachs, GE Capital, and a host of commercial banks to numerous to mention. Along with these failures or near failures there was a steady stream of hedge funds and special investment vehicles that disappeared also.

The cause was a reckless use of leverage for short term gains with a complete disregard for the longer term consequences. Now Wall Street is acting as if Dick Fuld and Lehman Brothers was the only problem. One hears constant references to “worse market since Lehman collapsed” “not since the Lehman collapse” etc. Beware this line of thought, it will lead us right back down the rabbit hole. September of 2008 was a disaster but it was not caused by one firm but rather the entire industry who are now trying to pretend they had no hand in the debacle and it was the responsibility of one firm.

This is the banking equivalent of the Wizard’s  “Please ignore the man behind the curtain”

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