Lehman Brothers goes bust - what does it all mean?

GlasgowGirl

Facilitator
Jul 22, 2008
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As most people will have seen, Lehman Brothers, the US bank, has filed for bankruptcy. This has sent the money markets into financial turmoil and forced the Bank of England to pump £5bn into the market, while the European Central Bank contributed 30 billion euros.

My question is, how much do we, the public, understand all of this? I was half-listening to this news story on the radio, and began wondering - how does the system actually work? If markets are supposed to work on the principle of free trade, why the cash injection from the central banks? Will they get it back? And how on earth did they have all this spare money available anyway? And is this really the best way to run the global economy?

Any economists here who can explain it all?
 

Tony

What Consumer Founder
Apr 7, 2008
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Bolton
The most shocking revelation is that they owe $300 billion to their creditors (25% of UK GDP) - this is likely to be to other financial institutions on the whole, but not exclusively. In the UK they employ 4000 people directly, but what about all the IT and cleaning contractors etc that service them. This is a real lose, esp. after 2000 jobs were shed by XL a few days ago. House of cards comes to mind.
 

GlasgowGirl

Facilitator
Jul 22, 2008
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Nope, I still don't understand. Where has the five billion quid gone? That's the, ahem, ten billion dollar question (at least it is at current exchange rates...)
 

Tony

What Consumer Founder
Apr 7, 2008
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Bolton
All I can say is that you are not alone. We need Marvin, you know the one with a brain the size of a planet from Hitchhikers Guide to the Galaxy.
 

GlasgowGirl

Facilitator
Jul 22, 2008
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I can just imagine it - "Here I am, brain the size of a planet, and all you want me to do is explain the global economy?"
 

Matt26

Facilitator
Aug 27, 2008
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Guildford
Read another article about it today.

According to the mail's finance guy (I know, I know), apparently the company's always had a bit of a 'master of the universe' complex - he cites the company's lofty attempts to sort out the climate change crisis as proof of this.

Anyway, in his opinion, this notion of invincibility led to them being waaay to risky with their lending and investment. This much is true - at the death, the company had an exposure of three times it's net worth...

I'm not an economist but c'mon....
 

Tony

What Consumer Founder
Apr 7, 2008
18,307
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Bolton
And the reason they were exposed to so much debt was because of the US authorities relaxing the regulations...