GLOBAL - On the first anniversary of the collapse of Lehman Brothers, fund management groups agree it was the "erroneous" decision to let the investment bank fail which almost crippled the global financial system.
Unlike the rescue of Bear Stearns, the bailout of Freddie Mac and Fannie Mae and subsequent assistance to AIG, Lehman filed for Chapter 11 bankruptcy on September 15, last year after it could not obtain eleventh hour US government assistance.
Fund groups agreed the authorities underestimated the impact Lehman's demise would have on the financial world.
Schroders chief investment officer Alan Brown said: "I believe we were within days of the system imploding. The inability of funding and borrowing got so extreme at the point of Lehman's.
"Was Lehman's too big to be allowed to fail? Yes, it probably was."
Invesco Perpetual chief investment officer Bob Yearbury said it was clear in September last year the banks had severe problems with capital bases and mark-to-market pricing.
He said: "I knew the bank troubles were serious, especially Lehman, but I never expected it to go under. Bear Stearns went in March but was saved. It was seen as too intertwined to fail.
"If Bear was too intertwined, surely Lehman would have also been deemed too intertwined to fail; it was probably 10 times the size.
"I am still flabbergasted to this day. We were close to the edge, I was as scared as I have ever felt in my entire career."
Yearbury said the US Treasury, led by Hank Paulson, could never have imagined the serious dangers posed by the Lehman demise.
"It is easy to point a figure of blame. But it was clearly the wrong decision. Look at the money they have had to throw at the banking system afterward," he said.
Ignis head of credit Chris Bowie said the market had expected a Lehman bailout.
He added: "The market was set up for a recession, but no one foresaw a total banking collapse. It was after Lehman fell when Libor went ballistic and corporate bond spreads absolutely skyrocketed. I was petrified. If Lehman could collapse, who was going to be next?"
Bowie said Lehman's collapse and subsequent actions through the credit crisis called into question investor trust in global governments.
"Governments have proved inconsistent, look at Bear Stearns and AIG compare to the erroneous decision over Lehman," he said.
"The UK government has been especially inconsistent. They said ‘no' to Bradford & Bingley and ‘yes' to Northern Rock. Then the government changed the legal terms on B&B bonds."
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