Larry Ball’s The Fed and Lehman Brothers: A Review Essay

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Abstract

Laurence Ball argues that the Federal Reserve (the Fed) could—and should—have bailed out Lehman Brothers so that it did not have to declare bankruptcy. He presents compelling evidence that it could have. I argue that the view that the Fed should not bail out Lehman is reasonable under the circumstances the Fed was in at the time. The Lehman bankruptcy is a case study in bailouts and the attendant moral hazard problem that expectations of bailouts create. The lessons learned imply a clear case for appropriate regulatory intervention to solve the problems created when governments cannot commit themselves to not undertake bailouts.

Original languageEnglish (US)
Pages (from-to)1503-1508
Number of pages6
JournalJournal of Economic Literature
Volume60
Issue number4
DOIs
StatePublished - Dec 2022

Bibliographical note

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© 2022 American Economic Association. All rights reserved.

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