At this stage in any economic stabilization process, the state-sponsored lifeboat for oligarchs starts to get a little crowded. Governments don’t have enough resources to save everyone, and not all major borrowers can have their debts rolled over. In emerging markets, it’s usually the shortage of foreign exchange that sets a limit on government largesse (see the start of our Atlantic article for more detail on this cycle); in the US and other industrial countries, it’s more complicated – mostly about constraints around bailout politics (Lorenzo Bini Smaghi made this point effectively in the fall).
The survival-failure decision is taken at the highest level. In April 2008, after the failure of Bear Stearns, Dick Fuld had dinner with Hank Paulson and reportedly concluded, “We [Lehman] have a huge brand with Treasury.” As the broader problems within the financial system worsened, this proved worth less than he thought.
Fuld is still in shock, and seething. How could Paulson let Lehman go? “Until the day they put me in the ground, I will wonder [why we weren’t saved],” he told Congress.
This week, Daniel Bouton resigned from running SocGen, in the face of what he called “incessant” verbal attacks – a reference presumably to lack of support from Mr. Sarkozy; it’s not good when the President of France calls your proposed pay package “a scandal”. And Ken Lewis may take a further battering – due in part to not being the best-connected with top people in Washington. Continue reading “Zombie Oligarchs”