US inaction to help Lehman survive was strange, says John Gieve

Sir John Gieve, an ex-deputy Governor of the Bank of England expressed his bewilderment over the inaction of US authorities against Lehman Brothers’ collapse saying he was "astounded" the U.S. government let Lehman Brothers go under, and that the bank's collapse marked a clear moment when people lost confidence in the markets.

Gieve said that he had fully expected U.S. authorities to step in this time last year to rescue the stricken investment bank, as it had done earlier with peer Bear Stearns. Back in March 2008 the Federal Reserve injected $29 billion to underwrite JP Morgan Chase's rescue of Bear Stearns. Later in September 2008 it had to intervene again in order to save AIG from collapsing.

Gieve noted that 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.

"I think letting Lehmans go really raised the question, did the U.S. have a grip on this thing?" he said.