Investor extraordinaire Jim Rogers says the financial system needs more failures like Lehman Brothers to restore a functioning free market.
The chairman of Rogers Holding wrote in the Financial Times, “We need some more Lehmans so we can get out of this.”
During the last 20 years, “Greenspan and Bernanke introduced crony capitalism to the West, which is leading to a lost decade(s),” Rogers writes.
“Market fundamentals are that failures should collapse and be replaced by creative new forces rather than being propped up as zombies. Financial institutions have been failing for centuries and the world has survived.”
If the Federal Reserve had allowed hedge fund Long Term Capital Management to fail 11 years ago, “Lehman, Bear Stearns, et al would still be here,” Rogers argues.
“Everyone would have lost so much capital and fired so many incompetents that the madness of serial bubbles (dotcoms, housing, consumption etc.) would never have occurred. … Would that governments stop interfering with fundamental principles and let the market clean out mistakes!
“Letting Lehman fail was perhaps the only thing governments have done right during this whole drama,” Rogers maintains.
Former IMF chief economist Simon Johnson disagrees.
The Fed has shown “it can save the financial system even in the face of unprecedented global panic,” Johnson wrote in The New York Times.
“But this will just encourage more reckless risk-taking going forward. In the absence of full re-regulation of the financial system, the Fed’s policies are asking for trouble.”
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