Lessons learned

Author: Olly Jackson | Published: 17 Oct 2018

Almost a decade ago, a decision was made that rocked the financial markets and moved western economies to the brink of collapse.

On Friday September 12 2008, the Federal Reserve decided not to bailout Lehman Brothers. Without a private sector solution, the investment firm could not obtain the liquidity needed to stabilise and three days later became the biggest bankruptcy in US history – $613 billion – nearly six times the previous record set by telecommunications company Worldcom six years earlier. This was particularly shocking, given that the rescue of Bear Sterns only a few months previously set the expectation that the government would bailout a big financial institution at whatever cost.

The impact was devastating. The aftermath caused more than 860,000 families in the US to lose their homes, unemployment hit a 26-year-high and the US household debt-to-GDP ratio reached 99%. Beyond these morbid figures, the consequences of the crash could...