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Entries in Lehman (2)

Saturday
Sep152012

US Economy Still at Grave Risk on 4-Year Anniversary of Lehman Brothers Collapse

Chris Hondros/Getty Images(NEW YORK) -- Just in the time for the four-year anniversary of the collapse of Lehman Brothers, a report concludes that the U.S. financial crisis has cost the country $12.8 trillion.

Better Markets, a nonprofit organization whose self-described mission is to "promote the public interest in financial reform," estimated the cost of the "Wall-Street caused financial collapse and ongoing economic crisis" using figures from the Congressional Budget Office and Gross Domestic Product estimates from the U.S. Bureau of Economic Analysis.

Lehman Brothers, the financial services firm, filed for bankruptcy Sept. 15, 2008, with about $691 billion in assets, the largest bankruptcy in U.S. history.

Dennis Kelleher, CEO of Better Markets and co-author of the report, said his organization timed its release with the anniversary to influence lawmakers to focus on tighter regulations.

"The message isn't to banks. It's to policy makers," Kelleher said. "If you look at the economic wreckage and suffering of the American people through the worst economy since the Great Depression, and see that it caused trillions of dollars. The priority has to be preventing this from ever happening again."

Kelleher admitted that the $12.8 trillion figure is an estimate and not a comprehensive figure.

He makes clear that the report does not insist "there's only one way to do this."

Kelleher believes, "The most important part of financial reform is regulating ‘too big to fail’ banks, so that if they fail, they fail without causing a collapse of the financial system or an economic crisis."

Copyright 2012 ABC News Radio

Thursday
May102012

FDIC Seeks to End ‘Too Big to Fail’ Bailouts

STAN HONDA/AFP/Getty Images(WASHINGTON) -- The U.S. government has launched a plan to deal with large failed companies that could touch off another Lehman-like disaster, hoping to prevent instability in the financial markets.

The Federal Deposit Insurance Corporation’s (FDIC) acting chairman Martin Gruenberg on Thursday outlined steps that the federal financial agency will take to allow the subsidiaries of a failed financial institution to operate while taking over a parent company -- without a taxpayer bailout in accordance with the Dodd-Frank Act.

In the event of a failing or failed institution, Gruenberg said the FDIC’s resolution strategy has three key goals.

“The first is financial stability, ensuring that the failure of the firm does not place the financial system itself at risk,” Gruenberg said in his prepared remarks in Chicago at the Federal Reserve Bank of Chicago’s Bank Structure Conference. “The second is accountability, ensuring that the investors in the failed firm bear the firm’s losses.”

James Chessen, chief economist with the American Bankers Association, said Gruenberg and the FDIC sent an “important” message to investors that there is an agency prepared to deal with a troubled, systemically important institution so disruptions will be minimal but investors will take losses.

“I think it’s clearly a message that says that if you’re expecting the government to protect your investment in a large financial firm, you should readjust your thinking,” Chessen said. “The plan is not to protect you and you should take care in really analyzing the risk of your investment.”

The third goal of the FDIC’s strategy is “viability” by converting the failed firm through a “receivership process,” similar to the manner in which the FDIC converts a failed, federally insured depository institution to another working bank.

The FDIC’s new strategy deals directly with these large financial companies, or “systematically important financial institutions” (SIFI), which critics describe as “too big to fail.” Those include a number of the rescued companies during the recent recession, like American International Group Inc. The U.S. government rescued AIG in 2008 with $125 billion in taxpayer money, and this week the Government Accountability Office released an estimate that the government could make a profit of $15.1 billion from the bailout.

The Group of 20′s enforcement agency, the Financial Services Board, published a list of about 30 SIFIs in November, which include eight American companies. Those banks face a number of requirements, including submitting a plan by the end of 2012 detailing how their businesses should be spun off if they collapse.

“By definition, these are institutions whose failure could, if not handled effectively, have ripple effects in the economy,” Chessen said. "The goal is to understand how you would resolve that.”

Copyright 2012 ABC News Radio







ABC News Radio