Consider, if you will, the following sequence of events.
On Sept. 15, Lehman Brothers filed for bankruptcy after the Treasury Department decided it was not too big to fail.
On Sept. 17, with more than $600 billion in Lehman’s assets now practically worthless, a money market fund called the Reserve Fund faced insolvency as it “broke the buck.” Credit markets froze solid.
On Sept. 19, the Federal Reserve began insuring money market funds.
For the next two months, credit markets remained frozen, stocks plunged, auto financing dried up and consumers snapped their wallets shut.
During the 90 days ended Dec. 31, employers cut 1.9 million jobs, and it looked like 1929 all over again.
Writing shortly after the December jobs report was released, Wells Fargo economist Eugenio J. Aleman placed the blame for nearly 2 million lost jobs squarely on the Treasury Department and the Federal Reserve for letting Lehman fail.
Calling the costs “unprecedented,” he continued with the following: “It will be very difficult to argue, today, that allowing Lehman to fall was a smart decision by the U.S. government.”
Which brings us to the president’s final press conference on Jan. 12. It was an extended conversation in which George W. Bush handicapped a lot of his decisions and expressed a few regrets.
It’s not surprising that Lehman Brothers’ failure never surfaced as a question. It seems so inside-baseball to all but a few financial news junkies.
But in my view, this is the decision that Bush 43 will come to regret the most of all. Its cost will be reckoned in the trillions of dollars, and I’ll bet you that someday, somewhere, a Federal Reserve chairman will apologize for not pursuing a more orderly liquidation of Lehman’s assets.