NEW YORK TIMES Column: ….The collapse of Lehman has long been considered the domino that led to the tumbling of so many others: Merrill Lynch’s hasty sale to Bank of America; the bailout of the American International Group; the breaking of the buck in the money market; the near collapse of Goldman Sachs and Morgan Stanley that led them to become banking holding companies; and the decision by the government to pursue the $700 billion Troubled Asset Relief Program to bail out the entire banking industry.
The decision not to rescue Lehman has been called a mistake and worse. Christine Lagarde, the French finance minister at the time, called it “horrendous.”
No one suggested Lehman deserved to be saved. But the argument has been made that the crisis might have been less severe if it had been saved, because Lehman’s failure created remarkable uncertainty in the market as investors became confused about the role of the government and whether it was picking winners and losers. The government had bailed out Bear Stearns and then nationalized Fannie Mae and Freddie Mac but left Lehman for dead only to turn around and save A.I.G… (more)
