The Fed was notably uncooperative in the desperate efforts of Lehman’s management to buy time. Contrary to the impression created by Bernanke’s retrospective testimony, the Fed concertedly pushed Lehman toward bankruptcy. 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. The scale of that error became clear within hours as the shock wave from the Lehman failure impacted the American and the world economy. A day later, Paulson, Bernanke and Geithner had to
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Ouch
