Friday, September 12, 2008

Krugman on Lehman

Interesting Krugman blog post on Lehman's precarious position right now.

Basically, all these assurances the federal government has been making - now for a sale of Lehman Brothers, previously for Bear Stearns - are really quite comparable to the support the feds have provided to deposit institutions for awhile through the FDIC. As Krugman puts it, it's a "heads stockholders win, tails taxpayers lose" arrangement. That government assumption of risk naturally lead to government regulation of depository institutions when the FDIC was created... the analagous argument for not regulating investment banks is becoming harder to refute as the federal government increasinly steps in to take risks in this market.

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