The US authorities’ decision to let Lehman fail will be severely criticised by financial historians – the next generation of Bernankes. That precipitated the current acute financial crisis. The Bear Stearns operation had protected counterparties, but after Lehman all remaining trust vanished. Money markets and interbank lending froze completely. Spreads on credit default swaps rose to levels signalling both extreme fear and feverish speculation.

Iceland’s Glitnir Bank was among the first casualties. One of the many vicious circles in this crisis ensnared Iceland’s banks: they were deemed too risky because the country’s central bank seemed not to be a credible lender of last resort, while the government and central bank were deemed not credible because they might have to take over the banks.