NBR:
ALLAN SLOAN, SR. EDITOR AT LARGE, FORTUNE: You'll be hearing a lot tomorrow about the anniversary of the Lehman Brothers bankruptcy, which, two years ago, came close to melting down the world financial system. What you probably won't hear, but should, is that lots of people initially thought it was great that the Fed let Lehman go under. Six months earlier, there had been lots of complaining about the government rescuing Bear Stearns. So there was applause when Lehman croaked. The market was being allowed to weed out the weak. Wasn't life grand? But the applause proved short-lived, because Lehman's failure had unintended consequences. It started a run on money market funds when a money fund that held Lehman paper broke the buck. It started a run on Goldman Sachs and Morgan Stanley because some hedge funds had their assets trapped at Lehman. You could feel the world financial system trembling. It was really, really scary. The only thing that saved the system from collapse was governments and central banks throwing trillions of dollars and loan guarantees at the problem and letting Goldman and Morgan Stanley become bank companies. The Lehman fallout was a major reason the government felt it had to bail out AIG, which was bigger than Lehman. So tomorrow, let's remember that letting Lehman fail turned out a lot messier than it first seemed to be and that even though bailouts are hateful, they sure beat having the world financial system collapse. I'm Allan Sloan.
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