Tim spoke with Diamond after the Barclays board meeting, at am New York time, and Bob warned him that Barclays was having problems with its regulators. I phoned my treasury team in Washington to brief them on the unhappy developments with Lehman and warn them that the markets were going to get very choppy.
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A contingent from Lehman crowded close to the doorway. So, I walked around the corner to a spot near some window on the other side of the elevators and phoned Wendy, who had just returned from church. I am really scared. It is unlikely to be among banks in New York or London, where the aftershocks of have led to efforts to improve the resilience of the financial system.
But there are many places where the underlying forces of disequilibrium in their economies could lead to cracks in the surface — emerging markets that have increased indebtedness, the euro area with its fault lines, China with a financial sector facing large losses, and the Middle and Near East with a rise in political tensions.
The two main threats to the world economy today are the continuing disequilibrium between spending and saving, both within and between major economies, and a return to a multi-polar world with similarities to the unstable position before the First World War. Whether the next crisis will be another collapse of our economic and financial system, or whether it will take the form of political or even military conflict, is impossible to say.
Neither is inevitable. But only a new world order could prevent such an outcome. Short-term stimulus reinforces the misallocation of investment between sectors of the economy, and its impact on spending peters out when households and businesses come to realise that the pattern of spending is unsustainable.
Central banks like the cyclist climbing an ever-steeper hill, will become exhausted.
China now faces serious risks from its financial sector. Dealing with the immediate symptoms of crises by taking short-term measures to maintain market confidence — usually by throwing large amounts of money at it — will only perpetuate the underlying disequilibrium. Almost every financial crisis starts with the belief that the provision of more liquidity is the answer, only for time to reveal that beneath the surface are genuine problems of solvency.
For many centuries, money and banking were financial alchemy, seen as a source of strength when in fact they were the weak link of a capitalist economy. It is the young of today who will suffer from the next crisis — and without reform the economic and human costs of that crisis will be bigger than last time. That is why, more than ever we need the audacity of pessimism. It is out best hope.
Even China, long associated with a policy of limiting upward market pressure on its currency, will find that its exchange rate comes under downward pressure. Because Lehman failed, but AIG was saved, questions persist.
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Did the government make a conscious decision to let Lehman fail, and, if so, why did it go on to save AIG? Additionally, if Lehman had somehow been saved, would a substantial part of the crisis have been averted? The company Lehman used dubious accounting transactions to inflate its reported ratio of capital to assets. It also significantly overstated the cash it had available to pay its creditors.
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If a means of saving Lehman did exist given the tools then available, we were not clever enough to think of it during those frenetic days. Hank had various reasons for saying what he said, including his personal and political discomfort with becoming the face of unpopular bailouts of too big to fail institutions.
The US had had several very bad hurricane seasons in the previous years and, on Lehman weekend, I imagined a series of hurricanes coming up the coast, one after the other. Not making enough money in stocks?
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My Saved Articles Sign in Sign up. The Olympics may be a case in point. In February , the International Olympic Committee decided to remove wrestling form the Olympics. That the sport was among those of the ancient Olympic games in Greece was apparently an easily-dismissible factor.
Although including new sports to make the Olympics relevant to a contemporary audience is advisable, and keeping the games from growing without limit is doubtlessly prudent, taking from one of the most Olympic sports risks removing the distinctiveness of the games, as rooted in the sports of the ancient games. It has been in the modern Olympics since Watching the performance, a viewer is apt to wonder how dance had become a sport—not to mention an Olympic sport.
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Meanwhile, the ancient Olympic sport of wrestling is expendable. Two underlying problems, or mentalities, are evinced in this case study. First, if rhythmic gymnastics is a sport simply because it is scored and has an international federation, then virtually anything under the sun could be classified as a sport. The very term sport could become a near-tautology. One person could mean one thing by the term while another person means something else. The term itself could become mere reflections of personal ideological agendas.