Tuesday, 15 September 2009

Lehman Brothers: An Obituary

As we pass the one year anniversary of the collapse of Lehman Brothers a lot of media sources and politicians are looking back and asking how and why this happened. It is the latter query though which is both more interesting yet worrying for libertarians.

It doesn't need me to spell it out for you that a a lack of regulation and more generally, capitalism, has taken the brunt of the blame. In his speech from Wall Street, Barack Obama stated “We will not go back to the days of reckless behaviour and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses".

To me this seems like a rather over-zealous argument, how can you realistically blame capitalism for the expensive mistakes of various CEOs such as Richard Fuld? Running a high-risk business would pay-off with some massive bonuses in the short-term but when it all goes down the proverbial gutter, people can't be too surprised.

The real problem lies in government bailouts and in this sense the American government did the right thing by refusing to help out Lehman Brothers though this rule should apply right across the board. I understand that the likes of Goldman Sachs have now paid back what they borrowed with interest but the very knowledge that this safety net will be there only promotes greater and greater risk. Only when it is made clear that companies are responsible for their own actions will they be able to make a healthy profit without jeopardising the public purse.