Coping with Financial Crises by Hugh Rockoff & Isao Suto

Author:Hugh Rockoff & Isao Suto
Language: eng
Format: epub
Publisher: Springer Singapore, Singapore

4.6.12 The Panic of 2008

The most recent crisis is another example of the rule that it is the failure of trusted firms that start panics. Lehman Brothers’ stock had been falling for some months before it filed for bankruptcy protection on September 15, 2008. But dial the clock back to 2007. In March Fortune Magazine released its annual list of “America’s Most Admired Companies” based on surveys of corporate executives and Wall Street analysts. Lehman Brothers Holdings was ranked number one among securities firms in 2007 ahead of Goldman Sachs, Morgan Stanley, Merrill Lynch, etc. Which firm was number two? Bear Stearns! True, by March 2008 the two had fallen a bit. Lehman Brothers was now ranked third among securities firms and Bear Stearns, which was only two months away from its government-aided acquisition by JPMorgan, was ranked eighth. Other firms that would play a role in the panic also did well in the 2007 rankings. American International Group ranked seventh in the property and casualty group ahead of State Farm and Nationwide. Countrywide Financial ranked third among Mortgage Service companies, IndyMac Bancorp ranked seventh, and Freddie Mac ranked ninth.20

The failure of a firm with Lehman Brother’s reputation would have been unsettling at any time. But it was particularly demoralizing in 2008 because of the events that had proceeded it. As suggested by Anna Schwartz investors were especially alarmed by the failure of Lehman Brothers because they were expecting a bailout along the lines of the Federal Reserve’s assisted purchase of Bear Stearns (Ryssdal 2009; Sorkin 2009, epilogue, Kindle locations 10281–10335).

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.