FacebookTwitterGoogle+RedditEmail

The Martyrdom of Lehman Brothers

Now that five years have passed since Lehman Brothers died, very nearly taking the global financial system over the cliff in the process, it is surely time to erect a suitably inscribed tombstone over the grave.

Among possible legends that might be etched under the name and dates of the deceased, only one could truly commemorate the failed bank’s singular contribution to the community in which it lived: martyr.

No matter that the bank routinely manipulated its balance sheet, recklessly gambled away billions and ruined thousands of customers by selling them ultimately worthless financial “products”, the system that nurtured it and its peers survives.

By shaking the pillars of the global financial system in its death throes, Lehman ensured that no other major bank will ever be allowed to fail again, however deserving it may be of the bailiff’s knock.

Officially of course, the US government is quite prepared to dismantle any firm, however big, that again threatens the system. The Dodd-Frank Wall Street Reform and Consumer Protection Act, the legislative response to the crash signed into law by US president Barack Obama in July, 2010, theoretically enables the authorities to seize and dismantle a failing institution whose collapse would once again threaten the whole system.

Its 2,300 pages include intricate directions under which banks with more than $250 billion in assets should devise “living wills”, blueprints for their own orderly deconstruction.

Mr Obama has subsequently touted the “tough regulation” he imposed on banks with this legislation. Wall Street eminences, such as JPMorgan Chase chief executive Jamie Dimon, assiduously endorsed the notion with regular complaints about the regulatory straitjacket they must now endure.

The problem is that no one really believes that there is any threat at all to the continued existence of the “too big to fail” banks, six of which are American with a further 23 based in Europe and Asia. Thanks to the Götterdämmerung of Lehman’s passing, the survivors have been placed on permanent life support.

The Big Six

Thus, bondholders investing in the six biggest US banks are so convinced that the government will always bail out these institutions that they are willing to accept lower returns than they would get from investing in smaller banks.

For the big six – JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, Citigroup and 220px-American_CasinoMorgan Stanley – this subsidy on borrowing costs has been calculated as amounting to $82 billion in extra profits between 2009 and 2011 alone.

The Federal Reserve, meanwhile, directs a ceaseless stream of cash at these same behemoths in the form of purchases of their holdings of mortgage-backed securities and other mechanisms.

The fact that the system is geared to preserving and bolstering the very same kinds of institutions that brought us so close to ruin does generate the occasional expression of disquiet in official circles, especially when episodes such as the multi-billion dollar train wreck inflicted by JPMorgan’s “London Whale” indicate that the global financial industry culture may not have changed all that much.

“The ‘oversize banking’ model of too big to fail is more dangerous than ever,” declared IMF managing director Christine Lagarde a few months ago, urging “more intense and intrusive” controls.

Unsurprisingly, this is not the message that comes from the big banks’ own management. As James Gorman, head of Morgan Stanley, told an interviewer recently, the probability of another 2008 crash “in our lifetime” is “as close to zero as I can imagine.”

“He may not know what’s happening inside his own bank, let alone the others,” scoffs Jeff Connaughton, author of The Payoff – Why Wall Street Always Wins, “all of them [the mega-banks] are basically dependent on the implicit guarantee of a government bailout.”

A former White House lawyer and Senate staffer, Connaughton was at the heart of a valiant effort in the immediate aftermath of the crisis to take apart the biggest banks. The effort, he recalls, was doomed to failure thanks to the official dogma (shared on shores far distant from Washington) that “we can’t harm one hair of a banker’s head”.

No one has ever explained exactly why Lehman was denied a government bailout in its last desperate days (one Wall Street theory holds that the bank’s chief executive,Richard Fuld, had once at a party stepped on the foot of Henry Paulson, the former Goldman Sachs chief who headed the US Treasury during the crisis, and hadn’t apologised) but clearly, in dying it allowed others to live.

Some lived better than others of course. Upper level Wall Street paychecks remain remarkably handsome (Gorman made just under $10 million last year) and no one has gone to jail for the frauds of yesteryear, while small investors around the world never regained the life-savings vaporised in the disaster. The rest of us must endure the austerity regimes mandated by the major banks as a condition of their support for governments’ own borrowing. Someone always has to pay the price of martyrdom, including the cost of that headstone.

Andrew  Cockburn is  the co-producer  of American  Casino, the 2009  documentary  on the Wall  Street crash.

This article originally appeared in the Irish Times.

More articles by:

Andrew Cockburn is the Washington editor of Harper’s Magazine.  An Irishman, he has covered national security topics in this country for many years.  In addition to publishing numerous books, he co-produced the 1997 feature film The Peacemaker and the 2009 documentary on the financial crisis American Casino.  His latest book is Kill Chain: The Rise of the High-Tech Assassins (Henry Holt).

September 24, 2018
Jonathan Cook
Hiding in Plain Sight: Why We Cannot See the System Destroying Us
Gary Leupp
All the Good News (Ignored by the Trump-Obsessed Media)
Robert Fisk
I Don’t See How a Palestinian State Can Ever Happen
Barry Brown
Pot as Political Speech
Lara Merling
Puerto Rico’s Colonial Legacy and Its Continuing Economic Troubles
Patrick Cockburn
Iraq’s Prime Ministers Come and Go, But the Stalemate Remains
William Blum
The New Iraq WMD: Russian Interference in US Elections
Julian Vigo
The UK’s Snoopers’ Charter Has Been Dealt a Serious Blow
Joseph Matten
Why Did Global Economic Performance Deteriorate in the 1970s?
Zhivko Illeieff
The Millennial Label: Distinguishing Facts from Fiction
Thomas Hon Wing Polin – Gerry Brown
Xinjiang : The New Great Game
Binoy Kampmark
Casting Kavanaugh: The Trump Supreme Court Drama
Max Wilbert
Blue Angels: the Naked Face of Empire
Weekend Edition
September 21, 2018
Friday - Sunday
Alexandra Isfahani-Hammond
Hurricane Florence and 9.7 Million Pigs
Andrew Levine
Israel’s Anti-Semitism Smear Campaign
Paul Street
Laquan McDonald is Being Tried for His Own Racist Murder
Brad Evans
What Does It Mean to Celebrate International Peace Day?
Nick Pemberton
With or Without Kavanaugh, The United States Is Anti-Choice
Jim Kavanagh
“Taxpayer Money” Threatens Medicare-for-All (And Every Other Social Program)
Jonathan Cook
Palestine: The Testbed for Trump’s Plan to Tear up the Rules-Based International Order
Jeffrey St. Clair
Roaming Charges: the Chickenhawks Have Finally Come Back Home to Roost!
David Rosen
As the Capitalist World Turns: From Empire to Imperialism to Globalization?
Jonah Raskin
Green Capitalism Rears Its Head at Global Climate Action Summit
James Munson
On Climate, the Centrists are the Deplorables
Robert Hunziker
Is Paris 2015 Already Underwater?
Arshad Khan
Will Their Ever be Justice for Rohingya Muslims?
Jill Richardson
Why Women Don’t Report Sexual Assault
Dave Clennon
A Victory for Historical Accuracy and the Peace Movement: Not One Emmy for Ken Burns and “The Vietnam War”
W. T. Whitney
US Harasses Cuba Amid Mysterious Circumstances
Nathan Kalman-Lamb
Things That Make Sports Fans Uncomfortable
George Capaccio
Iran: “Snapping Back” Sanctions and the Threat of War
Kenneth Surin
Brexit is Coming, But Which Will It Be?
Louis Proyect
Moore’s “Fahrenheit 11/9”: Entertaining Film, Crappy Politics
Ramzy Baroud
Why Israel Demolishes: Khan Al-Ahmar as Representation of Greater Genocide
Ben Dangl
The Zapatistas’ Dignified Rage: Revolutionary Theories and Anticapitalist Dreams of Subcommandante Marcos
Ron Jacobs
Faith, Madness, or Death
Bill Glahn
Crime Comes Knocking
Terry Heaton
Pat Robertson’s Hurricane “Miracle”
Dave Lindorff
In Montgomery County PA, It’s Often a Jury of White People
Louis Yako
From Citizens to Customers: the Corporate Customer Service Culture in America 
William Boardman
The Shame of Dianne Feinstein, the Courage of Christine Blasey Ford 
Ernie Niemi
Logging and Climate Change: Oregon is Appalachia and Timber is Our Coal
Jessicah Pierre
Nike Says “Believe in Something,” But Can It Sacrifice Something, Too?
Paul Fitzgerald - Elizabeth Gould
Weaponized Dreams? The Curious Case of Robert Moss
Olivia Alperstein
An Environmental 9/11: the EPA’s Gutting of Methane Regulations
FacebookTwitterGoogle+RedditEmail