This paper examines what transformed a significant, but relatively mild, financial disruption into a full-fledged financial crisis.It discusses why, although the Lehman Brothers bankruptcy was a key trigger for the global financial crisis, three other events were at least as important: the AIG collapse on September 16, 2008; the run on the Reserve Primary Fund on the same day; and the struggle to get the Troubled Asset Relief Plan (TARP) plan approved by Congress over the following couple of weeks.The paper then looks at the policy responses to the financial crisis to evaluate whether they helped avoid a worldwide depression.The paper ends by discussing the policy challenges raised in the aftermath of the crisis.
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