THE STRUCTURE OF CONFIDENCE AND THE COLLAPSE OF LEHMAN BROTHERS

On September 15. 2008. Lehman Brothersfiledfor bankruptcy and nearly caused a meltdown of the financial system. This article looks at the situation before Lehman went bankrupt and how this event came to trigger a financial panic during the fall of 2008 and early 2009. Two key ideas inform the analysis. The first is that what triggers financial panics are typically hidden losses. The second is that confidence plays a key role in financial panics and that confidence can be conceptualized as a belief that action can be based on proxy signs. rather than on direct information about the situation itself. On September 15,2008 at 1:45 A.M., Lehman Brothers filed for bankruptcy, something that nearly caused a meltdown of the world's financial system. A few days later, Bemanke made his famous statement that "we may not have an economy on Monday " (Thomas & Hirsh, 2009). President Bush expressed the same idea, but in his own language, when he said, "this sucker could go down " (Mason, 2009, p. 28)