# Lehman Brothers **Lehman Brothers** was the fourth-largest investment bank in the United States, whose bankruptcy on **September 15, 2008** — with roughly $639 billion in assets, the largest corporate bankruptcy in U.S. history — was the detonating event of the [[2008 Financial Crisis]]. A 158-year-old firm that began as an Alabama cotton brokerage, Lehman had transformed into a heavily-leveraged trader in mortgage-backed securities, operating at leverage ratios around 30-to-1 and deeply exposed to the collapsing subprime market. Lehman's fall is the pivotal counterfactual of the crisis. Six months earlier the government had brokered a rescue of Bear Stearns; two days after Lehman, it bailed out [[AIG]]. But Lehman was **allowed to fail** — Treasury Secretary Henry Paulson and Fed chair Ben Bernanke declined to backstop a buyer, judging (and later disputing) that they lacked authority and that markets had had time to prepare. They were wrong about the consequences: Lehman's collapse froze global credit markets, broke money-market funds, and converted a contained mortgage crisis into a worldwide panic. Within weeks the surviving investment banks converted to bank holding companies, ending the independent-investment-bank model. For the KB, Lehman is the purest case study in [[Shadow Banking]] and [[Too Big to Fail]]. It was a bank in everything but name and regulation — performing maturity transformation and credit creation outside the supervised perimeter — and its failure proved that the run dynamic the New Deal had tamed for insured banks was alive and lethal in the unregulated sector. The decision to let Lehman die, then rescue almost everyone else, also crystallized the **selective-backstop** grievance: the system socialized the losses of the connected and let the disconnected fall, the asymmetry that fed both left and right populist rage and, eventually, the [[Tea Party Movement]] and Trump. ## See Also - [[2008 Financial Crisis]] - [[Shadow Banking]] - [[Too Big to Fail]] - [[AIG]] - [[Financial System Timeline]] - [[Financial System Hub]]