Mind Over Market

At Bernanke's behest, in response to early tremors foreshadowing the financial crisis, Federal Reserve board members and staff engaged in  a process of idea generation and brainstorming. The effort was aimed at finding creative ways to provide emergency short-term lending and guarantee programs to extinguish the potential fires of financial panic and restore collapsed financial markets.  This blue sky thinking was well underway by September 2007 and prepared the Fed for what Bernanke calls "the dark abyss" at the height of the panic and pushed the limits of the Fed's authority in the bailouts of Bear Stearns and AIG.  By Robert Stowe England October 30, 2015 Before former Federal Reserve Chairman Ben Bernanke came up with an array of lending facilities to put out the fires of financial panic that broke out in 2007, he laid the groundwork inside the Fed with a brainstorming effort he called blue sky thinking. “We had ongoing conversations that were like a doctor...

Even after five years, there has been little acknowledgement of how the Lehman bankruptcy could have been avoided on September 15, 2008. A deal to spin off Lehman's bad assets to a Maiden Lane special purpose vehicle had been forged by Wall Street firms willing to lend the funds to make it possible. However, the sale of Lehman's good assets to Barclays Bank failed for lack of a temporary Fed guarantee of Lehman’s trading book. It may go done as the biggest mistake in the history of the Fed. By Robert Stowe England The Federal Reserve could have prevented the bankruptcy of Lehman Brothers in September 2008 by briefly guaranteeing the trades on Lehman’s good assets. The Fed guarantee was needed for only about 30 to 60 days to allow time for a vote by Barclay’s board of directors on Barclay management’s decision to acquire Lehman’s good assets. By Saturday, September 13, a deal had been put together under direction of Treasury Secretary Hank Paulson and ...

Lecture to Ethics Class Carey School of Business, Johns Hopkins University Legg-Mason Building, Baltimore East Harbor Campus Inner Harbor, Baltimore, Maryland August 27, 2012 By Robert Stowe England It’s nearly four years since the advent of financial crisis. Yet, for most Americans, a thick fog still shrouds its origins Finding the answer to what went wrong is what compelled me to write Black Box Casino. In the end, it was a detective story where even a list of important actors could run into the hundreds. At the center of origins of the crisis is a single industry – the mortgage industry. As senior writer for Mortgage Banking magazine since 1988, I have reported on the vast changes sweeping through the industry for more than two decades. The mortgage industry in 2008 was nothing like it was when I started covering it. Twenty years ago the mortgage industry was disciplined by the free market. It was flexible and innovative. New loan products would appear and...

The Federal Reserve could have prevented the bankruptcy of Lehman Brothers in September 2008 by simply guaranteeing Lehman's trades briefly, long enough for the deal to sell the good assets of the company to Barclays Bank in the United Kingdom to gain board approval at Barlcays. That observation was made New Year's Day during comments by Robert Stowe England on MoneyTalk with Bob Brinker in a discussion of his new book, Black Box Casino: How Wall Street's Risky Shadow Banking Crashed Global Finance . MoneyTalk with Bob Brinker is heard on 300 radio stations on Sundays. An archive of the broadcast can be heard here , beginning at 2:33 minutes "I would tend to agree with Allan Meltzer on this point . . . that the failure of the Fed to help rescue Lehman was the worst mistake in the Fed’s history," England said on the radio show. The entire deal was about to go through except for one hitch, England explained. "The regulatory authorities in the U.K. would not all...