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FAQ’s of Lehman and A.I.G. - by U of Chicago economists at Freakonomics

79 points by robg 18y ago

ryanb 18y ago
By far the best summary of the recent financial crisis that I've read yet. interesting quote: "... if the government had rescued Lehman, it would have repudiated the claim that the Bear rescue was extraordinary; it would have also conceded that in the six months since Bear failed, neither the new facility that it set up nor the other steps to make markets more robust were reliable. Essentially, the Fed and the Treasury would have been admitting that they had lied or were incompetent in stabilizing the financial system — or both."
nazgulnarsil 18y ago
I prefer mencius moldbug's MMORPG explanation: http://unqualified-reservations.blogspot.com/2008/01/straightforward-explanation-of-present.html http://unqualified-reservations.blogspot.com/2008/01/straigh...
- bokonist 18y ago
  He's got some excellent new commentary here: http://blogs.cfr.org/setser/2008/09/16/lehman-v-argentina/#comment-112661 http://blogs.cfr.org/setser/2008/09/16/lehman-v-argentina/#c...
  - nazgulnarsil 18y ago
    yeah, i read that linked from his post today. UR is the only blog I follow closely.
fallentimes 18y ago
Wow those guys are smart. I think I'm going to start calling bad investors and bad investments "Lehmans". The article was full of great quotes, but I think I still love Cuban's quote the best regarding the current financial situation: "One last point, has the irony of 3 of largest companies in the country who make their money giving financial and insurance advice to companies and individuals, are facing ruin from the advice they gave themselves ? If this isnt a lesson to every individual who is taking advice from an investment firm, i dont know what is."
- steveplace 18y ago
  If life gives you Lehmans, make Lehman-ade.
deleted 18y ago
[deleted]
logjam 18y ago
"So even for people whose own circumstances have not much changed, the cost of the credit is going to rise. For an individual or business that falls behind on payments or needs an increase in short-term credit because of the slowing economy, credit will be much harder to obtain than in recent years. This is going to slow growth." Bang. And there's the dirty little secret about our economy that the hard-core capitalists never mention. The theory is that in unfettered capitalism, those who take foolhardy risks are punished. What few mention is that the economy is so interdependent that the foolhardy decisions made by a few ripple through the entire system. Now we all suffer for the greed and incompetence of a few. This is why regulation is vital. Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. Cooperation, rather than competition, is the higher good.
- anamax 18y ago
  > Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. And therefore the combination is more competent/efficient? It wasn't biz that gave tax breaks to banks to buy Fannie Mae/Freddie Mac stock. > This is why regulation is vital. All regulation is vital? Or is some regulation "vital"? And, what are the odds that we'll actually get "good" regulation as opposed to the crappy regulation that we have? (Note that some of the Enron-reform regulation caused some of the current problems. Oops.)
- gaius 18y ago
  Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. I'm old enough to remember the nationalized industries, British Gas, British Telecom, British Airways and so on. They became infinitely better almost overnight when they were forced to compete in the market rather than being subsidised monopolies. Cooperation, rather than competition, is the higher good. Even Marx didn't believe that, that's why he was always banging on about dialectic materialism. Name one significant scientific or technological advance that didn't come about through competition, even if it was only to see who could do it first.
kqr2 18y ago
This podcast from NPR's Fresh Air is also a good overview of the Lehman Brothers bankruptcy and AIG bailout: http://www.npr.org/templates/story/story.php?storyId=94686428 http://www.npr.org/templates/story/story.php?storyId=9468642... There is also a link to a "Our Confusing Economy Explained" which is a good introduction to the financial "weapons of mass destruction".

79 points by robg 18y ago

ryanb 18y ago

By far the best summary of the recent financial crisis that I've read yet. interesting quote: "... if the government had rescued Lehman, it would have repudiated the claim that the Bear rescue was extraordinary; it would have also conceded that in the six months since Bear failed, neither the new facility that it set up nor the other steps to make markets more robust were reliable. Essentially, the Fed and the Treasury would have been admitting that they had lied or were incompetent in stabilizing the financial system — or both."

nazgulnarsil 18y ago

I prefer mencius moldbug's MMORPG explanation: http://unqualified-reservations.blogspot.com/2008/01/straightforward-explanation-of-present.html http://unqualified-reservations.blogspot.com/2008/01/straigh...

bokonist 18y ago
He's got some excellent new commentary here: http://blogs.cfr.org/setser/2008/09/16/lehman-v-argentina/#comment-112661 http://blogs.cfr.org/setser/2008/09/16/lehman-v-argentina/#c...
- nazgulnarsil 18y ago
  yeah, i read that linked from his post today. UR is the only blog I follow closely.

fallentimes 18y ago

Wow those guys are smart. I think I'm going to start calling bad investors and bad investments "Lehmans". The article was full of great quotes, but I think I still love Cuban's quote the best regarding the current financial situation: "One last point, has the irony of 3 of largest companies in the country who make their money giving financial and insurance advice to companies and individuals, are facing ruin from the advice they gave themselves ? If this isnt a lesson to every individual who is taking advice from an investment firm, i dont know what is."

steveplace 18y ago
If life gives you Lehmans, make Lehman-ade.

deleted 18y ago

[deleted]

logjam 18y ago

"So even for people whose own circumstances have not much changed, the cost of the credit is going to rise. For an individual or business that falls behind on payments or needs an increase in short-term credit because of the slowing economy, credit will be much harder to obtain than in recent years. This is going to slow growth." Bang. And there's the dirty little secret about our economy that the hard-core capitalists never mention. The theory is that in unfettered capitalism, those who take foolhardy risks are punished. What few mention is that the economy is so interdependent that the foolhardy decisions made by a few ripple through the entire system. Now we all suffer for the greed and incompetence of a few. This is why regulation is vital. Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. Cooperation, rather than competition, is the higher good.

anamax 18y ago
> Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. And therefore the combination is more competent/efficient? It wasn't biz that gave tax breaks to banks to buy Fannie Mae/Freddie Mac stock. > This is why regulation is vital. All regulation is vital? Or is some regulation "vital"? And, what are the odds that we'll actually get "good" regulation as opposed to the crappy regulation that we have? (Note that some of the Enron-reform regulation caused some of the current problems. Oops.)
gaius 18y ago
Business people have shown over and over again that they are just as incompetent and inefficient, if not strikingly more so, than government. I'm old enough to remember the nationalized industries, British Gas, British Telecom, British Airways and so on. They became infinitely better almost overnight when they were forced to compete in the market rather than being subsidised monopolies. Cooperation, rather than competition, is the higher good. Even Marx didn't believe that, that's why he was always banging on about dialectic materialism. Name one significant scientific or technological advance that didn't come about through competition, even if it was only to see who could do it first.

kqr2 18y ago

This podcast from NPR's Fresh Air is also a good overview of the Lehman Brothers bankruptcy and AIG bailout: http://www.npr.org/templates/story/story.php?storyId=94686428 http://www.npr.org/templates/story/story.php?storyId=9468642... There is also a link to a "Our Confusing Economy Explained" which is a good introduction to the financial "weapons of mass destruction".