The former deputy Governor of the Bank of England said he was "astounded" the US government let Lehman Brothers go under, and that the bank's collapse marked a clear moment when people lost confidence in the markets. Sir John Gieve said in an interview with Sky News he had fully expected US authorities to step in this time last year to rescue the stricken investment bank, as it had done earlier with peer Bear Stearns.
The Federal Reserve put up $29 billion in March 2008 to underwrite J.P. Morgan Chase's rescue of Bear Stearns, and was forced to step in again last September days after Lehman Brothers' failure to prevent AIG from collapsing. By propping up Bear Stearns, the Fed "created a presumption ... that the safety net had now been widened", which was then "dash(ed) to pieces" by the inaction over Lehmans, Gieve said in the interview to be broadcast on Monday.
"I think letting Lehmans go really raised the question, did the US have a grip on this thing?" he said. But Gieve, who left his job at the British central bank in February, praised the steps taken to halt the global financial meltdown that followed the Lehman Brothers failure. "Not just this government but governments across the West have been right to throw the kitchen sink at this," he said.
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