Why Didn’t Bankruptcy Work For Lehman Brothers?
Question/Comment: Dear Mr Solman, Many of the “experts” I hear on PBS and NPR think that bankruptcy would be a workable solution for the auto companies. I agree, but why did it NOT work for Lehman Brothers?
Paul Solman: Because what good is a firm whose value its reputation and trustworthiness and is no longer deemed to have either? The auto companies have the machinery and know-how to make things you and I might want. Maybe we don’t want them much just at the moment – not at the current cost of making them, at least. But someday…
Meanwhile, what would we have bought from Lehman once word was out that they might go under? Advice? Their savvy in investing our money? Their debt, given that we’d have to be sure they’d pay us back?
With a company whose value is as intangible as a financial firm – in this environment – viability is iffy, at best. The surprise is that Lehman wasn’t force-folded into some other firm, but not that it ceased to exist as independent business.