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Fri 09 Sep 2009Regulation key to preventing another financial catastrophe
ON SEPTEMBER 15th, 2008, Lehman Brothers filed for bankruptcy. The global financial system almost imploded in its aftermath. One year on and many trillions later, what are the lessons of the Lehman collapse?
Might we have been spared the deepest global recession since the 1930s if US authorities had bailed out Lehman rather than allowing such an inter-connected bank to fail? Should bondholders always be protected at all costs? Or does the implicit promise of government bailouts fuel further risky bank behaviour, thereby sowing the seeds of future crises? Ultimately, what should be done about banks that are “too big to fail”?
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