Alistair Darling in an interview with the Sunday Times (UK) --
As the anniversary of the collapse of Lehman Brothers approaches, Darling has been reflecting on its impact. He believes that if the US government had stepped in to save the investment bank, as it did for Freddie Mac and Fannie Mae, the American mortgage giants, the economic crisis that followed might not have been so dramatic.
“What I don’t think they realised was that when Lehman went down, people looked round the world and thought: well if Lehman can go down, and it’s one of the world’s biggest investment banks, then what else can go down? And that precipitated the crisis which finally manifested itself in October,” he says.
How much difference would it have made? “Well, if the Americans had stepped in, it would still have been necessary to recapitalise the banks. But the act of Lehman going down provoked a sense of crisis, which brought matters to a head much more quickly and severely than would otherwise have been the case. But then, hindsight’s a wonderful thing . . .”
Actual sequence of events as described by senior New York Fed official --
Barclays agreed to acquire Lehman after a syndicate of banks consented to backstop a new entity that would take over $55 billion to $60 billion of Lehman’s troubled assets, according to people familiar with the negotiations. The deal fell apart when the U.K.’s Financial Services Authority refused to sign off on the Barclays purchase that day and U.S. officials refused to take further steps to save the deal.
The New York Fed meeting then turned to discuss plan B [bankruptcy], Baxter said.
It's one of the continuing mysteries of the financial crisis post-mortems that critical non-decisions made by the UK government don't receive much attention.
UPDATE 29 JANUARY 2010: Hank Paulson has now confirmed that Darling blocked the Barclays takeover of Lehman.