The World From Berlin 'Who Would Lend an American Bank Money These Days?'

The US government's refusal to bail out Lehman Brothers could herald the beginning of a painful but overdue flushing out of the financial sector. By letting Lehman collapse, German commentators argue, Washington is giving banks a choice: Clean up your own mess or go under.


Pedestrians walk past the New York Stock Exchange on Monday.
DPA

Pedestrians walk past the New York Stock Exchange on Monday.

The collapse of Lehman Brothers and takeover of Merrill Lynch in a dramatic weekend that has shaken world financial marketsshattered two symbols of American financial power and highlighted that much of America's economic boom was built on self-delusion, write German media commentators.

But they say the decision by the US financial authorities not to bail out Lehman may signal the beginning of the end of the financial crisis. It will force the world's financial insitutions to get their own houses in order rather than relying on taxpayers' money to bail them out. This painful process will end up making the banking sector stronger, commentators argue. But the big investment banks will never be as powerful as they were before the crisis.

Conservative Die Welt writes:

"There hasn't been such a quake on Wall Street since Black Friday of 1929. The old-established investment bank Lehman Brothers tumbled into insolvency and will go under just like Bear Stearns did before it -- and Merrill Lynch saved itself by hurling itself into the arms of Bank of America."

"Three of the five most powerful investment banks from the world's biggest economy have disappeared within just half a year. The decision of the US government this time to refrain from bailing out a bank with taxpayers' money in the case of Lehman Brothers is without a doubt a signal that the financial industry, which has got into trouble through its own recklessness, can't count on the limitless help of the state."

Left-leaning Frankfurter Rundschau writes:

"The Americans are exposing the world to a highly dangerous experiment. For ideological reasons they don't want to save another bank with taxpayers' money and nationalize it. They are accepting the risk that this policy could end up costing a lot more money and lead to upheavals that no one had even dared imagine."

"Who would voluntarily lend an American bank money these days? All the authorities in Europe can do now is try to calm the markets with soothing words -- and hope."

Business daily Financial Times Deutschland writes:

"It's a historical watershed for the giants of Wall Street and a big leap into the unknown for the financial markets. It became clear (on Monday) that there is no longer a state guarantee of survival even for the top US financial institutions."

The problems at Lehman and Merrill Lynch "show once again how extremely fragile the situation in the financial markets is and make a mockery of all the downplaying talk by people like Deutsche Bank Chief Executive Josef Ackerman who has been waxing lyrical for months about a foreseeable end to the crisis."

"A new emergency is already on the horizon in the form of insurer AIG, which took over heavy credit risks and may now need fresh money on a large scale."

"It's quite possible that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke will soon be called to tackle their next emergency -- and won't be able to afford to say 'no' this time."

"Since yesterday, it's evident that the era in which the pure investment banks ruled the financial world is over. The only question is how orderly or chaotic their downfall will be."

Business daily Handelsblatt writes:

"The shock of the Lehman collapse that shook world financial markets yesterday could be healthy and may in fact herald the beginning of the end of the financial crisis."

"Only if the US government now remains steadfast, for example by leaving the shaky insurance group AIG to its own devices, can one hope that the crisis will end in the foreseeable future. The necessary flushing out of the market could then take its gruesome course, and world financial markets could pick themselves up again after being weaned off state doping."

"The shock therapy will be terribly painful for all those involved. It will make many small and large investors poorer and it will require tough action and a lot of patience. But in the end there will also be winners and the financial market will be far more solid."

"In light of this new outbreak of the financial crisis, the leading German private sector banks can count themselves lucky that their long delayed consolidation plans went ahead in an orderly way. The shares of Deutsche Bank, Postbank and Commerzbank got a battering yesterday, but there was no deep reason for that other than the general market uncertainty."

"If Deutsche Bank and Postbank on the one hand, and Dresdner Bank and Commerzbank on the other, had waited until this week to go ahead with their merger plans, they would have had to shelve them immediately."

"The important thing now is that trust is restored step by step. Between the banks, between customers and banks and in the financial markets. That will only be possible if no one suspects that there are any skeletons left in the cupboard. We should be prepared for a few more shocks like this."

Center-left Süddeutsche Zeitung writes:

"The downfall of the investment banks has hit America at its core. It shows that the country's boom was to a large extent founded on self-delusion."

"The storm on Wall Street could have a cleansing impact. If America realizes that it needs to change the rules for its financial industry, that will serve the whole world. But the earthquake on Wall Street also harbors a risk -- if the United States responds the way it did in the war on terror by turning inwards, other nations could follow suit. They could isolate themselves instead of working together to solve the problems of the world financial system."

Conservative Frankfurter Allgemeine Zeitung writes:

"As soon as the storm has died down, one will have to talk about the rules of the game. Central banks must intervene sooner to tackle price bubbles in asset markets rather than closing their eyes to them and then footing the bill at the cost of taxpayers."

David Crossland, 11.30 a.m. CET

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