Henry Paulson: Why I Let Lehman Brothers Fail

Video Clip of Henry Paulson, Secretary of Treasury, on why he let Lehman Brothers fail.

Paulson Talks Lehman from AlleyInsider on Vimeo.

Our Take:

• Mr. Paulson underestimated the after-effect scope and magnitude of Lehman Brothers' failure.
  
• Mr. Paulson underestimated the heightened and persistent high-level of volatility in the equity market and very low-level of liquidity in the credit market globally.
  
• Lehman Brothers should have been bailed out with some strings attached such as having strict requirement to eliminate executive bonuses and to ask executives to put their money in Lehman's bailout.
  
• Lehman Brothers is just as inter-connected as AIG and Citigroup. If Paulson let Lehman fail, he should have let AIG and Citigroup  fail as well to uphold integrity of the 'free' capital market.
  
• The approved TARP fund to bailout/invest in financial institutions is now much larger in size as a result of disastrous decision by Treasury dept not to bailout Lehman Brothers.
  
• There is significant likelyhood that Lehman Brothers' failure has caused much longer ripple effects (on the negative side) and possibly permanent damage on the global credit markets especially in the fixed-income market as Lehman's sponsored instruments are key forces in these markets.
• It is very unfortunate that Lehman Brothers, AIG, Citigroup, and other financial companies' executives are still not prosecuted for their incompetence to ensure proper risk management in all aspects of companies' leveraged operations and total failure to provide their unfortunate shareholders with high-level of transparency and integrity.
  
• It is far too early to judge Mr. Paulson's effectiveness as Secretary of Treasury. We can only hope the markets can take care of themselves ala Adam Smith's theory on the existence of 'Invincible Hand' on the positive side in the long-term despite all the inappropriate actions approved and implemented by regulators.