Ben Bernanke, Hank Paulson, and Timothy Geithner have repeatedly stated that they wanted to save Lehman Brothers but couldn't do so legally because Lehman didn't have enough collateral.

Laurence Ball says that this is not true and was something they made up weeks after the Lehman bankruptcy (2016 paper, 2018 book). From the paper:

The people in charge in 2008, from Ben Bernanke on down, have said repeatedly that they wanted to save Lehman, but could not do so because they lacked the legal authority. ...

There is a substantial record of policymakers' deliberations before the bankruptcy, and it contains no evidence that they examined the adequacy of Lehman's collateral, or that legal barriers deterred them from assisting the firm. ...

If legal constraints do not explain the non-rescue of Lehman, then what does? The available evidence supports the theories that political considerations were important, and that policymakers did not fully anticipate the damage from the bankruptcy.

Quote from MarketWatch interview of Ball (2018):

what irks me is that they have not owned up at all to any kind of mistake and they've invented this alternative history of what happened on the Lehman weekend that just isn't accurate.

Slate interview (2018):

what irks me is that they have just dug in their heels and insisted. They've just said the same thing over and over, more and more insistently. That we knew it was going to be a calamity for Lehman to fail. We absolutely did everything we possibly could do. It was simply illegal and we didn't want to break the law, so with great sorrow, as Bernanke put it at one point, we realized Lehman had to fail. That is what these days is called an alternative fact. And that's just not the way it happened.

Have Bernanke/Paulson/Geithner ever responded to Ball's accusations? Specifically, have they ever addressed the arguments made in Ball's paper/book?


If legal constraints do not explain the non-rescue of Lehman, then what does?

Katharina Pistor says "power" rather than "law" determines the outcomes during a systemic financial crisis. See A Legal Theory of Finance (47 pages).



This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crisis when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival of the system is at stake; that is, at its apex. It is here that power becomes salient.

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    $\begingroup$ How does that answer the question? $\endgroup$ Jul 28 at 0:01
  • $\begingroup$ It frames the context of political power as the solution to a problem caused by contract law. Contract law cannot provide a remedy for its own failures in the complex financial system so Official power is the remedy and then we get into legal and political arguments over the use of Official power which are distinct from contract law. So what if the response is that we made an error in judgment when using Official power? This does not mean the next Officials who use power will make the right decision in the next financial crisis. This is Monday Morning Quarterbacking. $\endgroup$ Jul 28 at 1:18
  • $\begingroup$ The question is whether there was a public statement by several people that addressed the accusation. Please read the question again. $\endgroup$ Jul 28 at 6:51
  • $\begingroup$ There is a question within the question quoted in my answer. Please read that question again. This answer pertains to that question within the question. $\endgroup$ Jul 28 at 13:24
  • $\begingroup$ There is a question within a quote within the question. That is not the question being asked. $\endgroup$ Jul 28 at 14:09

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