Lehman files for bankruptcy
Lehman Brothers filed Chapter 11 at 1:45 a.m. on September 15, 2008, with $639 billion in assets. It remains the largest bankruptcy in US history. A weekend of negotiations between the Fed, Treasury, Barclays, and Bank of America had failed to produce a buyer. By Monday morning, every trading desk in the world knew the details, and nobody knew which counterparty was next. The Reserve Primary Fund broke the buck within 48 hours. AIG was rescued the following day with an $85 billion Fed credit line. The commercial paper market froze.
The decision to let Lehman fail was made on the assumption that its counterparties were adequately collateralized. They were not. Within 72 hours, money-market funds were 'breaking the buck,' AIG was hours from insolvency, and the Fed was writing the Troubled Asset Relief Program from scratch.
08 · Global Financial Crisis
The US subprime mortgage market cracked in 2007. It took the investment banking industry with it in 2008. Lehman Brothers filed bankruptcy on September 15; the following two weeks, the global financial system came within hours of seizing. AIG, Fannie Mae, Freddie Mac, Wachovia, and Washington Mutual were rescued in succession. $33T in global wealth was destroyed. Recovery took until 2013.
Read the full era →