The bankruptcy of the investment bank Lehman Brothers was the pivotal event of the 2008 financial crisis and the Great Recession that followed. Ever since the bankruptcy, there has been heated debate about why the Federal Reserve did not rescue Lehman in the same way it rescued other financial institutions, such as Bear Stearns and AIG.
The Fed's leaders from that time, especially former Chair Ben Bernanke, have strongly asserted that they lacked the legal authority to save Lehman because it did not have adequate collateral for the loan it needed to survive. Based on a meticulous four-year study of the Lehman case, “The Fed and Lehman Brothers’’debunks the official narrative of the crisis. It shows that in reality, the Fed could have rescued Lehman but officials chose not to because of political pressures and because they underestimated the damage that the bankruptcy would do to the economy.
Speaker Laurence Ball is chair and professor of economics at Johns Hopkins University. He is also a research associate at the National Bureau of Economic Research and a consultant for the International Monetary Fund.
He has been a visiting scholar at a number of central banks, including the Federal Reserve, the Bank of Japan, the Bank of England, and the Reserve Bank of New Zealand. His research topics include unemployment, inflation, and fiscal and monetary policy. He is the author of The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster (Cambridge University Press, 2018).
Sponsored by the Department of Economics Danforth-Lewis Speakers Series.