Ideally allow Lehman to run was not a problem

The first anniversary of the collapse of Lehman Brothers held this September 15. This bankruptcy marks the beginning of a global recession and a yet unknown financial crisis since the great depression. But we, after a year, retained the lesson I am afraid not.

The consensus prevailing among policymakers was that if the Government had saved Lehman, history would have been only a hiccup and not a heart attack. Famous investors like important political decision-makers are of the opinion that in our economy world supraconnectée, a financial institution of the size of Lehman was not entitled to fail. Despite the poor quality of its management, a large financial institution creditors should always be reimbursed. Otherwise, the confidence in the system is undermined and chaos erupts. Including the need to avoid a financial restructuring at all costs, Governments around the world laid a huge safety net banks (and entire countries in Eastern Europe), woven in dollars paid by taxpayers.

Unfortunately, conventional diagnosis after the fact for Lehman was a pious wish. Basically, he returned to think that, whatever the extent of the housing bubble, the credit crisis and financial system, we may well be bailed out.

The fact is that global imbalances have mounted crescendo for years to reach a point of no return. The United States showed all the signs of a deep financial crisis well before the Lehman case.

The real estate prices had doubled in a few years, encouraging us consumers to forget any notion of savings. Policy makers, including the Federal Reserve, were pleased too long of the growth. Drunken profits, banks, insurance to are raw in paradise.

But Lehman Brothers was not alone. The financial system in its entirety was not at all prepared for the inevitable bursting of the housing and credit bubbles. The system had reached the point where it had to be refloated and restructured. No scenario political or legal realist does such rescue without blood. The fall of a major bank or an investment bank was inevitable to act as catalyst.

Ideally, allow Lehman to run was not a problem. This has become it in the execution. The Government should act in an aggressive manner to cushion calculations accounting to the complex derivatives for Lehman, even if it meant produce bold legal interpretations or force of new laws to regulate the financial system. It is certainly impossible to take these steps of the day to the next day, but it was sufficiently warned. Six months before the fall of Lehman, global credit began to diminish in the United States and Europe, areas that have also experienced the beginnings of a recession. And yet, nothing has been done.

So, what now Talking about regulating the financial sector, but the Governments fear to undermine confidence. It is recognized that the bursting of the housing bubble must be absorbed, but you don't have the courage to accept the consumption and low growth years that this implies.

It recognizes the need to rebalance the China - US trade relationship, but there is a lack of imagination on the procedure. Basically, our policy makers and political leaders are themselves convinced that, despite all its shortcomings, the old system was far better than all those that we can consider, and it is sufficient to restore the confidence for all repair, at least, during their term.

The lesson of Lehman should be that the global financial system must undergo major changes in terms of regulation and governance. The current method of the safety net can work in the short term, but will eventually lead to an explosion and a deficit that Governments will not be able to support, particularly in Europe and the United States.

Asia may volunteer to subsidize the West for the moment, but this will not last forever. Asia will eventually find other solutions, in part by digging its own loan markets. Within a few years, Western Governments will strongly increase taxes, inflationary measures, Miss part of their commitments, or make a mixture of the three. Painful as it may seem, it would be much more informed begin to align the fundamentals right now. It was crucial to restore confidence. But in the long term, we need governance and our credible global financial regulation.