September 15 - Lehman going under !

September could have done without one more dreadful milestone, but there is no way to plan these milestones. 15th September saw carnage of a different kind from the one September has become to be associated with since 2001. It all started Lehman Brothers, the venerable, 150 years organization going bust. This particular day was writing on the wall for global recession. Though it wasn’t the start or immediate cause of the recession, but it was more like an anchor. Freddie Mac and Fannie Mae were saved just a few days before, days later Merrill Lynch got sold and AIG had to be rescued.

The importance of September 15th lies in the fact that only after Lehman Brothers did everyone got the jolt and accepted the global recession. There were ramblings of recession in US, the housing bubble burst and credit crunch, but it was all thought to be an American thing. In Europe particularly, people didn’t see it coming, and it came much like a Tsunami wave. I don’t think anyone seriously thought of recession in Europe not even by the time they went for their summer vacation. The only small murmurs were of real estate bubbles in UK and Spain, and to a lesser extent of overheating of the economy of the ‘tiger’ economies of Baltic Rim (Estonia, Latvia, and Lithuania). It came fast and hit hard. There was no time to get prepared and everyone got washed away.

Standing at where we are today, it is hard to believe those days. Every morning would have the gloomy news stories of bankruptcies, lost jobs, crumbling stock indexes and shrinking order books. Recession was everywhere and for everyone. There were no more queues for taxis, one could see more people taking metros and commuting by public transport, popularity of private label products in store, etc. I am sure each one of us could still picture those days. They are still not so far in distant memory.

Today most of the big economies are ‘technically’ out of recession, and in the top management of most organizations (C level) the psychological green sprouts are all too visible. This is also the moment to revive the debate if it was wise to let Lehman go bust? I doubt even today if there would be a single answer, but in my personal opinion it served the larger good. Lehman going under spurred the measures to bring the world out of recession. It also cleared any doubt of global recession, or if this recession was only for US and other developed economies. From that perspective, it does feel right to let it go bust. Ofcourse, there is never going to be any good for those who lost their job and investments with Lehman.

It will be few more quarters when all the economies would come out of recession and job losses are stopped. Concerted efforts and personal attention by top politicians and their government have yielded results. Although now there is a risk of politically popular issues getting prominence, which might not have been the main reason for recession, nor might be a great help in bring the world out of it. Personally, I feel there were two main reasons for this recession and they should never be allowed again.
- Housing bubble, and for that matter, no bubble should never be allowed to form
- No country should have huge trade surplus and concomitantly no single country should have be running trade deficit. This situation becomes worse, when there is a single global reserve currency (USD)

Lessons are being learnt from this recession and even though there would be more global recessions, hopefully the reasons would not be the same.