The Fed and Lehman Brothers

A Policy@McCombs Event

In September 2008, Lehman Brothers filed for bankruptcy, causing chaos in financial markets and leading to a severe economic crisis. Larry Ball, Professor of Economics and Department Chair at Johns Hopkins University, joined us for a Policy@McCombs discussion of his new book. Ball argues that the Federal Reserve could have rescued the bank in a financially sound manner, avoiding some of the costly consequences that followed. While the Fed’s public narrative suggests that rescuing Lehman Brothers would have been illegal and an unreasonable economic risk for taxpayers, Ball’s research indicates that Federal Reserve officials hesitated to rescue Lehman Brothers because of the potential political consequences. He argues that subsequent, more stringent regulations under the 2010 Dodd-Frank banking law made future financial crises more likely, not less, by restricting the Fed’s lending abilities.

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