Why Lehman Brothers? An Examination of the Investment Bank Bailouts of the 2008 Financial Crisis

Abstract

The idea that strong connections between investment bank executives and politicians leads to a government bailout when the bank finds itself struggling with insolvency, otherwise known as crony capitalism, has sparked the interest of scholars and popular writers alike (Bartiromo 2010, Cresswell 2008, Prins 2009, Ritholtz 2009, and Rosas 2006). Research on the bailouts of the 2008 financial crisis in particular has indicated that banks who are politically connected are more likely to receive aid from the Federal Reserve (Blau 2013). Blau’s paper looks at emergency aid from the Federal Reserve for all types of banks rather than just the investment banks. This paper will look specifically at the bailouts of the investment banks. In particular, it will examine why Lehman Brothers was the only investment bank to not receive a bailout.