Lehman Brothers and the Panic of 2008

By 2008 losses on mortgage securities were threatening heavily leveraged financial firms. In March, investment bank Bear Stearns was sold to JPMorgan Chase with Federal Reserve support, and in early September the government took over mortgage giants Fannie Mae and Freddie Mac. On September 15, 2008, Lehman Brothers, a 158-year-old investment bank, filed for bankruptcy after no buyer or government rescue emerged; with over $600 billion in assets, it was the largest bankruptcy in US history. Panic followed.

The next day the government rescued insurer AIG, a money market fund 'broke the buck', and banks stopped lending to each other. Congress passed the $700 billion Troubled Asset Relief Program in October. Credit froze worldwide, world trade fell sharply, and the global economy contracted in 2009, the worst downturn since the 1930s. Debate continues over whether Lehman should have been rescued and whether bailouts rewarded the firms that caused the crisis.