WHEN BERNANKE DID NOT FOLLOW BAGEHOT. Paul Collier reviewed Tooze’s book and several other books on the financial crisis in the TLS (November 16, 2018). One of the books he reviewed was THE FED AND LEHMAN BROTHERS by Laurence Ball. Collier said: “The message is encapsulated by this line: ‘In theory, however, a firm should never experience a cut-off of repofunding (Collier defines a repo as a form of short-term borrowing for dealers in government securities).
Collier says: “His [Ball’s] central message is that the Federal Reserve failed to use its legal authority to act as lender of last resort.”
Six months before the Lehman bankruptcy, Professor Paul Krugman had praised Bernanke’s decisions to deal with the financial crisis here.
And yet Bernanke did not act as a lender of last resort for Lehman.
Tooze says (p. 175): “”Whatever happened in those forty-eight hours [before the bankruptcy filing] will remain forever a matter of controversy.”
To return to page 177, Tooze notes there that a New York Times editorial and the Wall Street Journal praised the decision to let Lehman fail.