I can't say that I'm sad about the collapse of Lehman, not so much because I don't like Lehman (actually, one of my favorite ex-students works (maybe now it is worked?) there), but because I think that the financial sector needs to fall flat on its face to get asset values -- and payment packages -- closer to reality. The financial sector has distorted so much of the rest of the economy -- through inflated asset values, lack of transparency in derivative exposure, pay packages so out of line that all kinds of talent that could be (and needs to be) applied to other areas goes off to it -- that no rescue package seems to me to the right policy. The bad part, however, is that the rest of the economy will be socked by it, and many of the folks who got all that money for all those years are long gone. Some of them will lose in the current crash, and that is how it should be. This would be a fun time to be teaching my Banking class. I will draw on a quotation from Allen Meltzer, not my favorite economist, generally " Capitalism without failures is like religion without sin. It does not work."
The view here seems to be a grave concern about a slowdown in the US economy and the effect of fewer contracts from the financial services industry for the service export industry here. I think that one thing that is overlooked is the effect of lower oil prices leading to fewer flows from the Gulf, and a slowdown there's effects on the Indian economy.
The happenings in the financial sector certainly merit more analysis, but I'm just too tired to write more now, or even link to insightful analysts elsewhere. Hopefully tomorrow.