Exploring the Collapse of Lehman Brothers and the Bailout that Never Happened

Abstract

This paper attempts a cursory synthesis of common narratives used to explain the collapse of Lehman Brothers, the only financial institution that was not bailed out during the 2008 Global Financial Crisis. As such the paper explores justifications for Lehman’s demise such as Lehman was not too big to fail, Lehman did not have sufficient collateral, and the Fed having no legal authority to support Lehman. The paper concludes that the available evidence does not support these narratives. The paper puts forward for further analysis an alternative hypothesis within the literature that Lehman’s failure can be attributed to contingencies such as wrong timing. Furthermore, the rescue of other failing institutions by the Fed can also be attributed to contingencies and not to actual differences with Lehman’s financial situation.