There seems to be a move to make the Lehman Brothers’ collapse the central turning point in the whole financial and economic crisis. But this is what Nouriel Roubini thinks:-
Some people suggest that letting Lehman go in this way was a mistake and if we had just bailed out Lehman everything would have been fine. We would have avoided this global meltdown, this global recession. I believe this interpretation of history is totally incorrect, because by the time Lehman had collapsed the housing recession had already started two years ago and was getting worse. So the idea that the crisis started with the collapse of Lehman and if we had only bailed out Lehman everything would have been OK in my view is just total nonsense. We were already in the middle of a severe economic and financial crisis, and a mortgage problem and a greater credit crunch that had been developing and worsening step by step for almost two years.
Why might it be attractive at this stage in the crisis to draw attention to Lehman as a key turning point? I wonder if such a simplified narrative, and one that hinges on a relatively recent policy error (if that is what Lehman’s collapse was), lets a lot more of us off the hook. If you did not appreciate the enormity of what was happening before Lehman collapsed and weren’t prepared — whether in business, journalism or just in your own household — you can draw a line under your ignorance and apportion blame more specifically. I suspect for journalists, analysts, investors and executives who found themselves adrift as events started turning sour post-February 2007, it allows them to reinvent themselves as more knowledgeable than they in fact were.
It must be some kind of memory bias at work. But which one to choose?
More from Roubini and the notion that we may still face death by a thousand cuts:-Donate and help me buy back my Fender ('About' tells you why)