Toomre Capital Markets LLC

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Lehman Brothers Bankruptcy Costs Non-Americans More than $300 Billion

On Monday October 13th 2008 comes news (via Reuters) that the bankruptcy of Lehman Brothers caused losses outside of the United States of more than $300 billion. The relevant part of the article reads:

The financial fallout outside the United States from Lehman Brothers Holdings' bankruptcy has been about $300 billion, the head of Germany's financial regulator said on Monday.

"We're still licking the wounds of Lehman," said Jochen Sanio, president of the German Federal Financial Supervisory Authority, at an international banking conference. "It caused international damage of $300 billion outside the U.S."

The U.S. government allowed investment bank Lehman Brothers to file for bankruptcy protection on September 15 instead of trying to intervene as it had done with investment bank Bear Stearns and later did with giant insurer American International Group.

Toomre Capital Markets LLC ("TCM") agrees with many commentators that the bankruptcy of Lehman Brothers in retrospect had many unintended consequences and was a primary contributing factor to the current economic crisis. Whether or not Treasury Secretary Hank Paulson made the right decision in letting Lehman fail will be debated for many months to come.

However, with such large losses among America's trading partners, it is certain that future decisions about rescuing financial institutions with potentially systemic risk implications will be made much more carefully. Hopefully, future such decisions will be made in consultation with America's global trading partners because in a highly interconnected, global world, such decisions affect far more than just the American "Main Street" economy.