Introduction: The World Circa 2008

On 15^th September 2008, Lehman Brothers became the largest firm on record to file for bankruptcy. This came against the back-drop of the global recession, which was preceded by the “Subprime Mortgage Crisis” in the USA. The consequences of the market meltdown were all encompassing, with many firms, banks and individuals suffering losses of wealth.

As it were, Lehman Bros were only one of a large number of public companies to collapse, whilst an even larger number flirted with extinction. There were other high profile investment banks that received a lot of media attention due to their particular problems. Bear Stearns, were bought by and incorporated into the JP Morgan group in March of that year and Merrill Lynch, were sold for a nominal fee to the Bank of America. This raises questions as to why the Lehman Bros were allowed to collapse.

Why could the Federal Reserve Bank not have intervened to save Lehman Bros with a “cash injection” as it did the following day for the insurance company American International Group (AIG)? Nationalisation also occurred less than a week later on the 21^st September in Newcastle-Upon-Tyne, England, when the Northern Rock bank was also rescued with a government bailout when it came under severe pressure. A.J. Joines (2010) research explores the notion of institutions being classified, based on perceptions rather than governed by strict rules, as “too big to fail”.