As important as it seems right now on Wall Street, this isn’t a day that most Americans will remember as all that big of a deal.
When Lehman Brothers Holdings Inc. goes out of business, the reaction of the average citizen is either “Lehman who?” or, “I heard of them! What do they do?”
It is a big deal, however, but not because some bond traders are out of work, or that puff pieces in business sections about Dick Fuld’s survival skills turned out to be wrong. It’s a big deal because this is the day that American financiers, from the point of view of the Asians who sit on top of the world’s biggest pile of mobile capital, became a bad risk.
Not so bad as the Sudanese, perhaps, but certainly worse than the Chileans. According to the bankruptcy papers thrown together over the weekend, the list of Lehman’s 30 biggest unsecured creditors is dominated by Asian financial institutions: Aozora, Chuo Mitsui Trust, Sumitomo Mitsui Financial, Mizuho Corporate Bank, Shinkin Central Bank, Bank of China and so on.
Who else did you imagine would be left holding this bag? Who else did you imagine was propping up the system?
Ever since the government jumped in to bail out Bear Stearns Companies Inc.—and whatever else that was, it was a bailout—the behaviour of the US government in the financial markets has felt like a mystery by an author who is cheating and withholding a key piece of information.
In letting Lehman fail the federal government puts a fine point on an obvious question: Why didn’t they let Bear Stearns go, too? This business about the markets having time to adjust to Lehman’s problems is baloney. The markets didn’t adjust to Bear Stearns’ collapse; the markets looked at what the Feds had done for Bear Stearns and assumed they’d do it for Lehman.
One part of the answer is that the people who sit on top of our financial system simply didn’t know what would happen if a big Wall Street firm went down. They have since studied the matter and concluded that their worst fears were unfounded.
But in Lehman’s list of creditors we have another part of the answer, I’ll bet. It wasn’t merely instability the US treasury and the Federal Reserve feared. It was the loss of the good opinion of the people who supply the US with the capital it no longer generates itself. For 25 years, Asian financial firms have been amazingly indulgent of US investment bankers.
What do you think they’re saying about them—and us—now?
Respond to this column at email@example.com