Ten years since the collapse of Lehman Brothers
15 September 2018
Ten years ago on this day, the global capitalist system entered its most far-reaching and devastating crisis since the Great Depression of the 1930s. A decade later none of the contradictions which produced the financial crisis has been alleviated, much less overcome. Moreover, the very policies carried out to prevent a total meltdown of the financial system, involving the outlay of trillions of dollars by the US Federal Reserve and other major central banks, have only created the conditions for an even bigger disaster.
The immediate trigger for the onset of the crisis was the decision by US financial authorities not to bail out the 158-year-old investment bank Lehman Brothers and prevent its bankruptcy. There is considerable evidence to suggest that this was a deliberate decision by the Federal Reserve to create the necessary conditions for what they knew would have to be a massive bailout, not just of a series of banks but the entire financial system.
The previous March, the Fed had organised a $30 billion rescue of Bear Stearns when it was taken over by JP Morgan. But as the Fed’s own minutes from that time make clear the Bear Stearns crisis was just the tip of a huge financial iceberg. The Fed noted that “given the fragile conditions of the financial markets at the time” and the “expected contagion” that would result from its demise it was necessary to organise a bailout. As Fed chairman Ben Bernanke later testified, a sudden failure would have led to a “chaotic unwinding” of positions in financial markets. The bailout of Bear Stearns was not a solution but a holding operation to try to buy time and prepare for what was coming.
While the demise of Lehman was the initial trigger, the most…