The collapse of the investment bank Lehman Brothers over the weekend of 13-14 September last year was an event of world-historical magnitude. What was so important about it wasn't the local havoc it caused, the loss of jobs and livelihoods and savings; it wasn't even the fact that the US Treasury's decision to allow the bank to go bankrupt triggered a full-blown stock market collapse, the nauseatingly expensive bail-out of AIG just a few days later, the seizing up of credit markets, the near implosion of the global economy, and then a worldwide recession/ depression. Those things are all a very big deal; but the most important lesson of Lehman was that it established, irrefutably, the fact that the big Western banks are now Too Big to Fail. Their size, and their interconnectedness, is such that these institutions can't be allowed to die a natural death, whatever happens. These banks have an implicit guarantee that if they ever get sufficiently deeply into trouble, the taxpayers will be there to bail them out.

LRB 5 November 2009 | PDF Download