The Collapse of Lehman Brothers

Abstract

This chapter assesses the collapse of Lehman Brothers in September of 2008, which was a watershed event that pushed the global financial system and economy to the brink. The worst-case scenario was avoided, however, when governments and central banks around the world began to liquefy markets and stabilize financial asset prices as the magnitude of the crisis became evident. The turmoil of the months following the collapse of Lehman was one of the most unforgettable episodes during the author's tenure as governor of the Bank of Japan. The chapter begins by looking at the collapse of the US housing bubble. The bursting of the US housing bubble quickly became evident in sluggish housing investments, but it took some time before the overall economy began to suffer. The chapter then considers how the Bank of Japan did everything within its powers to maintain the stability of the financial system and the economy.