Prima di Natale avevo consigliato un paio books (see here) dedicated to the economic crisis broke out in 2008. One of them is entitled Collapse - Too big to fail, by Andrew Sorkin, published by De Agostini . A volume of over 500 pages written by a journalist who spent months reconstruct the events that led to the failure of Lehman Brothers and the collapse of the global economy.
Here, in brief, what happened in 2008 according to the reconstruction of Sorkin.
The independent investment banks, including Lehman Brothers and Bear Stearns, after years of lending to anyone who is full of complicated securities, for which the repayment of principal and interest payments depends on the payment of loans from those who bought the house.
The decline in property values \u200b\u200b makes it difficult to assess the value of the securities and banking who own them, and this encourages capital flight: those who have an account with these banks, prefer to withdraw the money. Others speculate downward securities of investment banks. Betting on the difficulties of these banks, the stock value decreases and others interpret the reduction as a clear signal that business, for banks, go wrong. So in turn withdraw the funds paid by condemning these banks, if the situation does not change, to failure.
governors of central banks, Ben Bernanke of the Fed, Tim Geithner and a number of central bank of New York and Treasury Secretary Henry Paulson know what's going on.
But they think the market can self-regulate and it is better influence as possible. So the summer of 2008 are busy because Lehman, as happened with Bear Sterns in March, is sold to a commercial bank with fewer problems of liquidity, thanks to its depositors less likely, compared to a hedge fund manager, to Take money away at the first sign of danger.
think that buying Lehman reassure the markets and that, consequently, the other banks business (Lynck Merrill, Goldman Sachs, JP Morgan, Morgan Stanley) will be able to raise capital as always.
Tradition holds their plan: facing a dramatic crisis, the famous JP Morgan had met the most important bankers in America and had forced them to find a solution to save the troubled banks. The failure of a bank would have carried with him the other and so the bankers had devised a bailout.
There are two problems that can be underestimated.
The first objective is the difficulty of giving a value to a bank full of unlisted securities and very complex. The value of securities depends on too many random elements.
If the value of a security depends on thousands of loans granted around America, the assessment is very uncertain. Buyers of homes in a suburb of Chicago will pay the mortgage? and if you do not pay what you will be able to collect and therefore how much will the loss of a title?
The bonds are of uncertain value, and so the banks that own them.
The second is the potential conflict of interest . To give a value to a bank requires experts capable of evaluating the budget. But who can do it (banks and firms of lawyers and accountants) can also use the data collected improperly, damage to the bank analyzed or for the benefit of a client ready to take this opportunity to buy the bank (in whole or in part) at discounted prices: those selling for fear of providing too much information. But no information is difficult to give a value to the bank.
And 'what happens with Lehman Brothers. You are unable to determine a value. Too complex to assess a flood of mortgages. At the end of Lehman Brothers fails, even is forced by the government and two governors to declare bankruptcy.
Suddenly the rules of market economy were set aside by the government, which pulled out a plan prepared by a Treasury official and required all.
Investment banks have been forced to borrow tens of billions of dollars in the hope that this would end the uncertainties and the flight of capital from investment banks, forced to become commercial banks or sold to a commercial bank.
Perhaps the hope was misplaced, since the collapses of major economies in Europe and America, but certainly the plan worked: the investment banks in 2008 no longer exist and none of them has failed.
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