The new book excerpt from Hank Paulson points out that the Lehman bailout deal fell apart at the last minute because of British government intransigence:
At 11 a.m., I went back upstairs, and soon got on the phone with (British Finance Minister) Alistair Darling, who wanted a report on Lehman. I told him we were stunned to learn that the FSA was refusing to approve the Barclays’ transaction
He made it clear, without a hint of apology in his voice, that there was no way Barclays would buy Lehman. He offered no specifics, other than to say that we were asking the British government to take on too big a risk, and he was not willing to have us unload our problems on the British taxpayer.
And who is Darling? The same smart guy who also used antiterrorist laws against Iceland when its banks collapsed.
Oct. 9 (Bloomberg) — Chancellor of the Exchequer Alistair Darling used anti-terrorism rules to take control of assets held in Britain by a troubled Icelandic bank.
Darling stepped in to protect deposits made by U.K. residents in Reykjavik-based Landsbanki Islands hf, which the government of Iceland seized yesterday. About 300,000 U.K. account holders held deposits at Landsbanki’s Internet bank, Icesave.
“To protect U.K. economic interests the government has frozen the funds and financial assets held by Landbanksi,” Stephen Timms, financial secretary to the Treasury, said in Parliament in London today
So basically, this crisis blew up because the British government was in self-preservation mode. This is not just a historical footnote….it suggests, as we already knew, that the fundamental weakness of the global economy is that there is no global central bank and no global regulators with real power.