Too big to fail?

Hank Paulson has revealed that Alistair Darling effectively vetoed the acquisition of Lehman Brothers by Barclays Bank last year because he did not want to "import America's cancer." If this revelation is true, it was certainly an audacious move by the Chancellor.

Although Britain is America's closest ally, British interests must remain at the heart of our decision. Thus, it was right that the Chancellor wanted to stop Lehman's toxic assets infiltrating into the British markets. Especially when details about the deal were very vague in terms of taxpayer support, it was wholly understandable why the British government were reluctant.

They must have assessed the situation, and concluded that the world could cope with the the collapse of Lehman Brothers. But then, why did they rescue other banks later on, but not Lehman?

At this point, we must note that Lehman was an investment bank. However, the banks the government bailed out also had a retail sector. This is the crucial difference. The government had a solemn duty to protect retail banks because their collapse would be truly catastrophic to the public. People had vast amounts of savings in Northern Rock and RBS - this is why they could just not collapse. Although, Lehman Brothers sinking would affect the world market with confidence and lending, other retail banks would have a direct effect on British consumers.