The Baumgarten Report

Many people have been clamoring for a criminal investigation into the near collapse of the U.S. financial system. Now, apparently, their pleas are being answered.

The Associated Press is reporting that the FBI is investigating Freddie Mac, Fannie Mae and AIG for possible fraud.

The AP says Lehman Brothers is also under investigation.

While criminal charges, if they eventually come, won’t make whole those who have been damaged by poor investment decisions, the investigation at least signals that the law applies to everyone in the United States.

Now if we can only find a way to make the bailout plan as equitable!
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Steil

Analysts at the Council on Foreign Relations are applauding the Federal Reserve’s decision to not bail out Lehman Brothers as it inched toward insolvency.

CFR Senior Fellow Benn Steil notes that, unlike Bear Stearns, which unravelled very quickly, Lehman Brothers came apart slowly.

“It was absolutely the right decision of the fed and the treasury to not step in … and to let them go,” he said.

Noting that central banks in South America and Asia got into trouble bailing out financial institutions there, Steil argues that a Fed intervention would have been dangerous.

“If the Federal Reserve takes on too many unlimited liabilities on its books,” he says, “…it could be in the same situation. We may see the same sort of reaction here that we did in developing nations.”

CFR geoeconomics expert Sebastian Mallaby adds that the Lehman Brothers collapse could affect New York City in the long run.

“New York’s position as the preeminent global financial center,” Mallaby says, “is potentially at stake.”

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News crews camp out outside Lehman Brothers Manhattan headquarters

It is, of course, a political year. So it’s time to start pointing fingers of blame, and positioning oneself to take advantage of the collapse of Lehman Brothers. Especially if one’s name is Barack Obama.

During a campaign stop in Colorado today, Obama charged that the Bush administration’s financial policies have led to, “the most serious financial crisis since the Great Depression.”

Of course, Obama is promising reforms to avert a recurrence. So too, to his credit, is John McCain, who told supporters in Florida that his administration would “clean up Wall Street.”

All of this, of course, is little consolation to the more than 20,000 Lehman Brothers employees worldwide, most of whom are spending what may be their last day on the job.

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Photo credit: Gary Baumgarten

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The fall of the nation’s fourth largest investment bank bodes poorly for New York City.

Lehman Brothers employs some 2,000 people in New York. It’s believed that at least half will soon be out of work.

The bank also occupies more than 20-million-square-feet of office space in Manhattan.

The record bankruptcy follows an 11th-hour weekend attempt by the feds to find a suitor to bail Lehman Brothers out. An attempt was made to create a partnership with Bank of America But BOA instead decided to buy another ailing investment giant, Merrill Lynch, for some $50 billion dollars.

Former Fed chair Alan Greenspan, who is known for his understatement about the nation’s financial status, said on This Week on ABC that the United States is facing a “once-in-a-century” financial crisis.

There’s a saying here in New York. How Wall Street goes, so goes New York City. Mayor Michael Bloomberg, no slouch when it comes to understanding finances, will likely come out with belt tightening measures. Hopefully the city, and the nation, will be able to weather this financial storm.

Photo credit: http://www.flickr.com/photos/zilpho/164270827/

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