Tuesday, September 16, 2008

Meet Lehman's Board of Directors

As the financial bombs continue to go off and investment firms and banks go under, pay special attention to the way the politicians and press frame the discussion. Most of it will be in terms of what the government could have done to prevent the crisis.

It's all nonsense. Dig this profile of Lehamn's board of directors.
Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry.

Meet the Lehman Brothers Holdings Inc. external board directors, a group of 10 people who, perhaps unknowingly, carried the health of the world’s financial system on their shoulders the past 18 months.
That's hardly the group you would pick to lead an investment firm. For a time, it worked. Here's Lehman's stock price chart from the last 5 years.

In January of 2007, when this crisis was brewing, LEH was around $85. It had turned a nice profit for the shareholders and the company was showing fantastic growth. Profits almost doubled between 2004 and 2007. All the while, today's catastrophes were gestating.

Thanks to companies like Lehman, more and more people were buying homes. Of course, they couldn't afford them, but it was a big jackpot for everyone. The folks whose money mangement skills had kept them renting duplexes could now invest in real estate, real estate that was surely going to keep appreciating.

Which politician currently in office was going to stand up in 2007 and tell the financial world and the citizens of the country to stop all of this madness? Who was going to introduce the regulations that kept knuckleheads from buying houses? Which party was going to endorse policies that would deflate the stock prices of companies like Lehman? Nobody who wanted to get re-elected would ever do that.

The current financial crisis perfectly illustrates how the government does not manage the economy. No politician "gets the economy moving again" no matter how much they flap their gums. The press, with their brows furrowed in confusion at the sight of their own checkbooks awaiting balancing, lucky enough just to find their way in to work in the morning, can't comprehend the notion that bubbles and crashes are a natural consequence of human economic activity.

Instead of preparing for crises like this through thrift and restraint during good times, we rush about pointing fingers at each other when the crash hits, having rushed about only 6 months earlier taking credit for the boom.

Some day, if we're really lucky, we might wake up to this. Hopefully we can do this before the Social Security and Medicare bombs go off. Hopefully we can do it before we jump off the cliff of a massive, new health care program. In the meantime, we'll be treated to campaign commercials that claim credit for market success and blame the other side for market failures.

Update: Investors Business Daily blames Bill Clinton. If I had the stomach for it, which I don't, I'd check out Paul Krugman at the New York Times to find a similarly convoluted reason why it's all Bush's fault.

Update 2: While he's biased in favor of the right, Captain Ed points out how those champions of government regulation, the Democrats, went right into the tank for the mortgage industry.

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