TOOZE ON THE LEHMAN BANKRUPTCY—PAGE 177. I began Tooze’s book by looking at his treatment of certain facets of the financial crisis that have interested me. Begin with the Lehman bankruptcy in September 1968. I posted here on the dramatic moment when Harvey Miller, the dean of the bankruptcy bar, told some 25 Treasury and Federal Reserve officials on September 13, 2008 that if Lehman went bankrupt there would be “a financial Armageddon.” Ben Bernanke head of the Federal Reserve and Henry Paulson Secretary of Treasury chose not to bail out Lehman. Lehman filed for bankruptcy on September 15, 2008. A financial crisis ensued.
What does Tooze say about the bankruptcy?
Tooze critcizes the bankruptcy decision three times on a single page (p.177): “…’Hank and Ben’ [Paulson and Bernanke] had in fact made a mistake. That they might have underestimated the severity of the fallout that Lehman’s failure would cause.” He also refers on page 177 to “the catastrophic consequences of Lehman’s failure….” Tooze concludes on page 177: “The argument made at the time was that ending uncertainty by means of bankruptcy would help to calm the markets. It is easy to say with hindsight, but it was a spectacular error of judgment.”