Jim Roger’s view on Lehman Brothers

It’s been a year since the demise of Lehman Brothers, a catastrophic event that deepened the credit crisis, sent the financial markets into a tailspin, froze credit and caused governments across the world to bail out big institutions that were hitherto deemed ‘too big to fail’. What is more, since then a debate has raged worldwide whether preventing Lehman Brothers from bankruptcy would have alleviated the crisis that ensued.

As reported in the Economist, while from a purely economic point of view the failure of Lehman hit global economies very badly, from a political point of view bailing out financial institutions then drew considerable criticism as it created moral hazard. Infact, the Economist further reported that at some point political pressures would have required a big firm to go bust. After all, it was only after the Lehman incident that global governments got into damage control mode.

Interestingly, investment guru Jim Rogers believes that the global financial system needs more failures like Lehman Brothers to restore a functioning free market. This is what he said, “Market fundamentals are that failures should collapse and be replaced by creative new forces rather than being propped up as zombies. Financial institutions have been failing for centuries and the world has survived.” We believe that bailing out the financial system was inevitable given the enormous pain that would have followed. Having said that, mechanisms will have to be built into the system that will ensure that such a financial blunder is not repeated in the future.