![]() 2 The regulators refused to provide a federal guarantee or other bailout. ![]() The days before Lehman’s bankruptcy filing on September 15, 2008, saw frantic efforts by Treasury Secretary Hank Paulson and other regulators to arrange a sale or rescue for Lehman. After first describing the conventional perspective in slightly more detail, I will use four questions as the framework for my analysis: 1) Was the Lehman bankruptcy the key moment in the crisis? 2) Did Lehman trigger the broader crisis? 3) Would bankruptcy have worked for Lehman and other large financial institutions? and 4) Does the inaccuracy of the conventional wisdom matter, or is it harmless given, among other things, subsequent regulatory reforms? The Conventional Wisdom ![]() In my view, this settled wisdom, which I have elsewhere called the “Lehman Myth,” 1 is largely mistaken. And its consequences show that, under the financial architecture in place at the time, bailouts were the only effective response to the financial distress of a systemically important financial institution. According to this narrative, the failure to rescue Lehman was the defining event of the 2008 crisis, the match that started the conflagration. But a standard narrative about the implications of not bailing Lehman out quickly took hold. ![]() In the 10 years since Lehman Brothers filed for bankruptcy, debate continues to rage over many aspects of the crisis, such as the question of whether regulators could have bailed out Lehman if they wished to. ![]()
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