Why was Lehman Brothers allowed to fail while Bear Stearns, AIG, Fannie Mae, and Freddie Mac were saved?
The decision to let Lehman Brothers fail was largely made by then-Treasury Secretary Henry Paulson and the British Financial Services Authority. When initial attempts to save Lehman ultimately failed, Paulson and then-New York Federal Reserve President Tim Geithner decided to trust that the economy could absorb a Lehman Brothers failure and not use taxpayer money to orchestrate a rescue. The days leading up to the Lehman Brothers collapse were similar to those preceding the Bear Sterns failure. In March 2008, the Federal Reserve and Treasury feared a Bear Stearns failure would have devastating ripple effects throughout the economy and felt the best move for all was to partner with JP Morgan Chase to bailout the investment bank. This led to six months of media questioning of the principles of Paulson, Geithner, and the rest of the regulatory apparatus. When Fannie Mae and Freddie Mac teetered on the edge of bankruptcy, Treasury came to the rescue, instead of the Fed, but on the same log
