I have been feeling a bit guilty recently about whether I am partly to blame for the global financial crisis.
My guilt relates to the column I wrote on September 10 - which seems like an eternity ago – urging Hank Paulson, the US Treasury Secretary, not to rescue Lehman Brothers. Since then, the received wisdom has become that Lehman’s demise set off the crisis that is still unfolding.
The FT has a long and thorough analysis this morning of the Lehman question and the criticism of Mr Paulson (and, by extension, me) for being reckless in not propping up what was the fourth biggest US investment bank.
It includes the assessment by Christine Lagarde, the French finance minister, that the Lehman decision was “horrendous” and describes how it led to a crisis of confidence in US money market funds and financial institutions.
With hindsight, it is fairly clear that Mr Paulson’s impulse – to try to avoid having to prop up the entire banking system by taking a chance on what would happen if the bank failed – did not work as intended.
On the other hand, just because something does not work does not mean it was not worth trying. It clearly would have been preferable in terms of moral hazard and public budgets to have let Lehman collapse, provided that if a systemic crisis could have been avoided.
The ultimate question is whether it made any difference – whether things would have been better if Lehman was still with us. Somehow I doubt that. The forces building to a global financial crisis were so overwhelming that I cannot believe they would have been halted in their tracks by a Lehman rescue.
It is far more likely that the US government would have kept getting pushed back to the position it is in today: having to organise a $700bn bail-out package and perhaps having to nationalise banks.
Meanwhile, it is politically tempting but lacking in credibility for European governments to pin the blame on Mr Paulson’s Lehman decision.
