The consensus among regulators continues to be that letting Lehman Brothers (OTC:LEHMQ) file for bankruptcy was a mistake. Jimmy Rogers sees it differently, he told The Financial Times: “Letting Lehman fail was perhaps the only thing governments have done right during this whole drama.” According to Rogers, if Long-Term Capital Management [LTCM] had been allowed to fail in 1998, Lehman along with several other troubled financial institutions would’ve lost massive amounts of money. As a result, that would’ve slowed them down for years and we wouldn’t have had to deal with “the madness of serial bubbles”.
Richard Bookstaber, a noted expert in risk management, disagrees. In an interview with Henry Blodget and Aaron Task, Bookstaber says that ” it’s wrong to call LTCM a bailout, since the fund’s investors and principals suffered huge losses. Bookstaber also says that had the Fed not intervened in 1998 to save LTCM, Lehman Brothers would have failed then, triggering the same kind of domino effect as its 2008 bankruptcy caused.
Richard Bookstaber is absolutley right! The question is, what can the Fed do now to correct their mistake? Is it possible for the Fed to force Lehman Brothers to withdraw Chapter 11? This would restore investor confidence and stabilize the markets. LEH is an American icon like GM! It must be saved!