Inside the White House with D.C.'s most wired reporter. Sign up for Mike Allen's Axios AM.

Stories

How Lehman went to zero

Crises are nearly always unexpected. When Russia defaulted in 1998, it caused a crisis because the markets didn't see it coming. But Argentina's much larger default in 2001, or Venezuela's in 2018, caused barely a broader ripple because they were so clearly signposted and expected.

Data: FactSet; Chart: Axios Visuals

The chart of the last five years of the Lehman Brothers' share price shows a company going to zero in pretty much the most orderly way you could imagine. It doesn't suddenly plunge at the end; rather, the decline begins in mid-January 2007, a full 20 months before catastrophe strikes. This chart is a chronicle of a bankruptcy foretold.

Between the lines: If the crisis really began on Sept. 15, 2008, it's not because Lehman fell — it's because the Fed wasn't there to catch its fall. When shareholders lose money, that almost never has systemic consequences.

  • But Lehman was an integral part of the plumbing of the financial system and had tens of thousands of counterparties around the world. Those counterparties woke up in a world where they had no idea whether they owned their assets anymore. And that is the kind of thing that causes a crisis.
More stories loading.