Staving off Armageddon: Fin.Ed. 101 readings over Christmas - Forward Thinking column by Managing Editor Allan Saunderson:

Too Big To Fail, the book by New York Times reporter Andrew Ross Sorkin on the most tempestuous couple of weeks in recent financial market history around September 2008, is an education in finance and banking, as exciting as a thriller. That and The Man Who Stole $65bn about Bernie Madoff, told me over year-end everything I needed to know about markets, banking and credit but was afraid to ask. Why was Lehman allowed to fail but not Bear Stearns, AIG, Wachovia, Morgan Stanley or Goldman Sachs? Lehman was leveraged 30:1. That means its investments were 30 times equity, far higher than any other institution and sky high compared to Basel II, where BIS officials work off an equity ratio of 8%, ie around 12:1 at maximum. Because credit default swaps and sub-prime residential mortgages were paying huge returns and underlying real estate was rising in value, all was well with the world. Lehman boss Dick Fuld and others were taking home $100m per year bonuses. (Register now for a trial subscription to read PFE 148)