Europe Isn't Another Lehman—Or Is It?


Major banks stop lending to each other. A liquidity scare sets in. Policy makers contemplate filling the void with dollars meant to stave off fears that the banking system is failing.

Sept. 15, 2008. Sept. 15, 2011.

Same scene, different players.

Or is it?

How close we are to another Lehman Brothers moment is occupying the thoughts of many nowadays, and Thursday’s headlines didn’t help.

While the move by the European Central Bank and its global brethren to inject liquidity into Europe’s banks sent stocks to a rally, the similarity with the Lehman scenario was unmistakable.

For now, Treasury Secretary Tim Geithner’s assurance that this is not another Lehman moment is winning the day. But how long can that last?

“We hear Geithner saying this isn’t Lehman, this isn’t 2008,” says Nadav Baum, senior vice president at BPU Investment Management in Pittsburgh. “Yet the language they’re using in Europe is the same language they were using over here.”

Indeed, there were calls earlier in the week from banking analyst Dick Bove and others to give Europe its own version of the TARP—Troubled Asset Relief Program—that helped bail out US banks three years ago.

And Geithner himself is expected to weigh in with a similar plan, calling for a renewal of the Term Asset-Backed Loan Facility, to thaw financial markets.

TARP, TALF—to the untrained ear, it sounds like 2008 all over again.

Here’s the difference the “it isn’t Lehman this time” crowd are counting on: The alphabet soup of government programs came after Lehman croaked and JPMorgan stuffed Bear Stearns in its pocket at a Wall Street flea market.

Moreover, there is the belief that in 2008 there was an actual liquidity problem, whereas this time it’s more of a perception.

Banking analyst Meredith Whitney explained to me in a series of email exchanges that “there is so much more liquidity in the system today” and the real problem is one of currency diversification.

What is still unclear is why, if there is all this liquidity and, as some suggest, no reason to fear widespread contagion problem, that Greece simply can’t go ahead and restructure its debt, as it ultimately must.

Only when (yes, when) Greece actually does default will we truly know if this is a real Lehman moment.


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