Magazine

Lessons from Lehman's Failure


Financial experts and regulators opine on what we've learned in the year since the investment bank collapsed

SHEILA BAIR

Chair of the Federal Deposit Insurance Corp.

"We need an orderly resolution process for closing large nonbank financial institutions, as the FDIC now has for banks. This is essential to protect the broader economy from damage when a large institution gets itself into trouble."

JEREMY SIEGEL

Professor of Finance at the University of Pennsylvania's Wharton School and author of Stocks for the Long Run

"We learned from the mistakes of the 1930s, in particular the mistakes mentioned by Milton Friedman in his critique of Fed policy during the Great Depression. Friedman thought that the Fed should have provided liquidity and reserves at that time. Current Fed Chairman Ben Bernanke is taking his strategy page by page out of that critique. When I look at the situation--the liquidity measures, the backstop to the banking system--that sort of confidence is the primary reason the credit markets have improved."

ELIZABETH WARREN

Harvard Law School professor and chair of the Congressional Oversight Panel

"If there's no credible threat of liquidation, then capitalism doesn't work--and that's true whether we're talking about peanut butter manufacturers or hedge funds. After so many bailouts, it is critically important to design a system in which the winners survive and the losers get flushed away."

DOUGLAS REDIKER

Director of New America Foundation's Global Strategic Finance Initiative and former Lehman Brothers investment banker

"Any argument that Lehman's collapse served the positive purpose of letting the world financial system participants know there was a risk to be had, that message lasted 24 hours. We may now have the inverse message: There are banks that are too big to fail."


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