The Financial Turmoil, One Year Later
To the Editor:
Re “A Year After a Cataclysm, Little Change on Wall St.” (front page, Sept. 12):
It is outrageous that a year after the second greatest financial collapse in the history of our country, broad new financial regulations have not been introduced. With $600 trillion of unregulated derivatives, banks continue to be excessively leveraged, and bonuses based on paper profits continue to remove investor liquidity from the market.
Who is protecting investors and taxpayers from Wall Street greed and reckless behavior? The absence of regulation reflects the power of the banking lobby, and the gross incompetence of our government.
Dan Petashnick
West Hartford, Conn., Sept.
12, 2009
To the Editor:
Re “Lehman Had to Die, It Seems, So Global Finance Could Live,” by Joe Nocera (Talking Business column, front page, Sept. 12):
Mr. Nocera’s argument hinges on the view that if Henry M. Paulson Jr., Treasury secretary at the time of Lehman Brothers’ demise, and Ben Bernanke, the Federal Reserve chairman, had permitted the firm to live, Congress would not have panicked and passed legislation authorizing $700 billion to strengthen the financial sector.
Without that legislation, the crisis could have been much worse, he argues, as the government would not have been in a position to save A.I.G. or Merrill Lynch, whose failures posed more danger to the global system.
But given the close, complex links between banks and financial institutions, and the lack of trust between counterparties at that time, the effect of a Lehman failure would have been much wider than that firm’s size alone would indicate.
While Lehman was not itself a bank with a key position in the payment system — which other banks rely on as an intermediary when making payments to one another — Lehman’s financial dealings with such key banks made those banks’ financial positions very sensitive to a shift in confidence.
And if confidence were shaken, deposits and other short-term financing could be withdrawn at short notice, causing such a bank to fail. The mere rumor that a key bank had material business with Lehman could have had huge effects.
The Fed and the Treasury should have taken over Lehman to safeguard the smooth functioning of the payment system. Shareholders would have absorbed losses first, and senior management would have been replaced.
The idea that Congress would not have passed the bailout if Lehman had been seized and stabilized, while tantalizing, ignores the fact that various other key banks and financial institutions were also on the brink. And with Lehman stabilized, Congress would have had more time and, perhaps, passed better legislation.
Clarence Schwab
Managing Partner, C. Schwab
Larchmont, N.Y., Sept.
16, 2009
To the Editor:
The unfairness lies not in Lehman Brothers’ being allowed to fail, but in the bailout of other firms like Bear Stearns, Citigroup and AIG.
If bank holding companies like Citigroup had failed instead of being rescued, their separately incorporated and well-capitalized commercial bank subsidiaries would have simply continued in business under new ownership, with no necessary losses to depositors or the Federal Deposit Insurance Corporation.
Last year Ben Bernanke, the Federal Reserve chairman, and Henry M. Paulson Jr., Treasury secretary at the time, did irreparable harm to the principle of financial responsibility. The Senate should resoundingly reject Mr. Bernanke’s nomination for a second term.
J. Huston McCulloch
Upper Arlington, Ohio, Sept.
12, 2009
The writer is a professor of economics and finance at Ohio State University.
To the Editor:
Some may question the memory of this 85-year-old, yet I have no doubt that less than a year ago the nation was being assured by government officials that the huge bailouts of financial institutions were necessary because — in the interest of avoiding a national disaster — those institutions were too large to be allowed to fail.
Despite that, our government has permitted (or encouraged) some banks to gobble up others. For example, JPMorgan Chase acquired Washington Mutual, and Bank of America absorbed Merrill Lynch.
So I was dismayed that your suggestions in “Reforming the Financial System” (editorial, Sept. 14) did not include reducing the size of financial institutions in order to minimize the chances of future huge bailouts at taxpayer expense.
Lester Goldstein
Seattle, Sept.
15, 2009
To the Editor:
Re “Robbed by the Bank,” by Jane Pedreira, who was laid off from Lehman Brothers a week before it went bankrupt (Op-Ed, Sept. 15):
Ms. Pedreira’s self-pitying line — “did I deserve to be robbed because of the mistakes of others?” — would be more appropriate posted on the hundreds of thousands of houses in foreclosure.
Compensation at investment banks is tied to the game of gambling with other people’s money: heads I win, tails you lose.
Now that the downside has finally become clear, we’re being told by some on Wall Street that it’s a bad idea to limit bonuses because employees might run away, as if they were rare specimens who must be cultivated at any cost. Wrong! These are ordinary, easily replaceable people.
The really rare specimens on which our civilization depends are those who are motivated by a passion for their work, from researchers to kindergarten teachers. These are the ones we must cultivate; if not, we are doomed.
Thomas E. Stern
Valbonne, France, Sept.
16, 2009
To the Editor:
Re “Judge Rejects a Settlement Over Bonuses” (front page, Sept. 15):
It was a single person who insisted that some of the culprits in our financial calamity not only be identified but actually be held accountable. It wasn’t the executive branch, or the regulators, or Congress. It was Judge Jed S. Rakoff.
All those who are interested in equality before the law should be grateful to our founding fathers for their wisdom in establishing an independent third branch of government that isn’t susceptible to campaign contributions and lobbying. He is the kind of judge they envisioned, and he has met their highest expectations.
James P. Tuthill
Lafayette, Calif., Sept.
15, 2009
The writer is a lecturer at the School of Law at the University of California, Berkeley.
To the Editor:
Re “Bernanke Says Growth Is Returning” (Business Day, Sept. 16):
Ben Bernanke, the Federal Reserve chairman, says that the recession is “very likely” over and that it may be months before unemployment starts to drop. That’s like saying the cancer is cured when the patient dies.
Let’s define “recession” so it means something real.
Richard Leiter
San Rafael, Calif., Sept.
16, 2009
Source: New York Times
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