Letting Lehman Brothers go bust must have seemed like a good idea at the time. Or at any rate, the least evil of the options available to the US financial authorities, all of which were bad. Mindful of the potential systemic risk of what would be the biggest bankruptcy in history, America's leading financial public servants trod carefully. A special Sunday trading session of the derivatives market, ISDA, was even arranged in order that exposure to Lehman's hundred of billions of dollars of debt by other institutions could be minimised.
But when, at 5.30am EST on Monday, 15 September, the official Chapter 11 announcement was made, it rapidly became apparent that attempts to minimise the impact of the failure of the world's fourth-largest investment bank had come spectacularly unstuck. In the course of the following couple of weeks, the Lehman's collapse would come to be seen as the point at which the credit crunch suddenly became orders of magnitude more severe, morphing into a full-scale financial crisis with the potential to be as bad, said the Jonahs, as the Great Depression of the 1930s.
The news triggered a vertiginous fall on the New York stock exchange that morning, with the Dow Jones index losing 504 points, thanks to panic selling on a scale not seen for a generation. The authorities' efforts to manage the situation may even have made things worse - braced for bad news as they were by the events of the previous few days, the markets raced downhill out of the blocks that morning like Usain Bolt hearing the starting gun. As share prices plunged, asset values evaporated and tight credit markets dried up completely, it looked alarmingly like the entire global financial system was beginning to unravel.