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Ten years ago on Sept. 15, in 2008, Lehman Brothers Holdings Inc. failed in spectacular fashion.
The implosion of the $600 billion-in-assets investment bank immediately triggered the financial crisis, which led directly to the Great Recession.
But none of that had to happen.
Lehman could have been saved or, at least, slowly and systematically unwound. The financial crisis could have been averted, and the Great Recession should never have happened.
Those events happened for good reasons in hindsight. Not good for you, me, the economy, or America, but good for the reshaping of political and banking powers who benefited from what they let happen.
This frightening reality tale starts with who let Lehman Brothers get so big, who let it fail, and why…
Picking Up Nickels in Front of Buses
On June 2, 1987, President Ronald Reagan nominated Alan Greenspan successor to Paul Volcker as chair of the Board of Governors of the Federal Reserve System.
In case you don't know, the Federal Reserve is America's privately owned central bank that lets Congress appoint its head to fool the public into believing it's a government institution. It's not.
Two months after his confirmation, Mr. Greenspan faced the 1987 stock market crash.
His response was to publicly affirm the Fed's "readiness to serve as a source of liquidity to support the economic and financial system."
In other words, use the Fed's powers to soak banks and markets, and – by trickle-down distillates – the economy, with cheap money to stimulate bank and market profitability and economic growth.
Urgent: This catastrophe could bring the U.S. economy to its knees – and make the Great Recession seem like a day at the beach. Read more…
The reclusive Fed chair – who spoke, when he had to, in some odd, obfuscatory central bank code that awed Congress and the public – came off as an economic wizard whose academic bent and self-important research work elevated him above other petty policy pushers.
Greenspan thought easy money was the answer to all of America's excesses, especially when banking and market excesses plus failures necessitated his rescue.
His rescue efforts became known as the "Greenspan put." In other words, like a put option contract, if the market was headed down, Greenspan's Fed would always be there to stem losses and turn them into profits for risk-on speculators.
That's why Greenspan served under Presidents Reagan, George H.W. Bush, Bill Clinton, and George W. Bush.
When Genius Failed
The only time the Greenspan put wasn't immediately underwritten was in the summer of 1998.
That's "When Genius Failed," which is the title of Roger Lowenstein's extraordinary inside story of how Long Term Capital Management (LTCM), a giant hedge fund run by some of the smartest Wall Street veterans ever – including two Nobel laureates in economics – failed when its massively overleveraged bets went haywire.
About the Author
Shah Gilani is Chief Financial Strategist for Money Map Press and boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker. He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk and established that company's "listed" and OTC trading desks. Shah founded a second hedge fund in 1999, which he ran until 2003. Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see. On top of the free newsletter, as editor of The 10X Trader, Money Map Report and Straight Line Profits, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade using a little-known strategy. Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on FOX Business' "Varney & Co."