Frenzy and illusion

The insolvency of Lehman Brothers has become a fault line in financial history. The failure of the US government to act as lender of last resort in Lehman’s insolvency was a deflationary shock unlike anything in decades. Now, in Europe, if Germany were to disavow contingent liability for deeper eurozone union, there is the growing risk of a second large defl ationary shock in just five years.