europe ( for example, denmark, germany and the united kingdom ), the authorities had intervened precisely to avoid the collapse of banks that were in difficulty ( bear sterns, northern rock, ikb and roskilde ). in the light of this assessment, it is legitimate to ask why the failure of lehman brothers was not prevented. various theories have been put forward in this regard. the one i find most credible is that there was a political veto, at the highest levels, against the use of public funds to rescue an investment bank. indeed, right after the bank ’ s failure was announced, the us secretary of the treasury himself confirmed that, “ i never once considered that it was appropriate to put taxpayer money on the line in resolving lehman brothers ”. 1 the timing of the lehman crisis also played a key role. only a few days later the us treasury had taken on the sizeable debt of fannie mae and freddie mac, a decision which was criticised in the press. straight after this step was taken, it appeared that the us treasury did not want to be charged with using “ i never once considered that it was appropriate to put taxpayer money on the line in resolving lehman brothers ”, dow jones, 15 october 2008. public money and practising what has been called a kind of “ financial socialism ”. there is no doubt that the pressure of public opinion played a role. we could stop here, with a negative assessment of the political decision taken by the us administration, which proved to be wrong. however, perhaps the problem might be more complex than that. as subsequent events have shown, in particular when the first rescue package was rejected by the us congress, opposition to providing the financial sector with public funds came not only from within the government, but also from parliament. the members of the us congress, many of whom face voters at the beginning of november, feared that such a decision would compromise their re - election. there was opposition to rescuing lehman brothers, therefore, not only from within the administration, but also from congress and, more broadly, from public opinion. in other words, the decision was largely the result of a democratic process. ultimately, it was the us citizens who did not want to rescue lehman brothers. this analysis is not restricted to the lehman brothers case alone. even in countries where bankruptcies were successfully avoided through intervention, the decision was fiercely criticised by the respective parliaments and public opinion. in some cases, it was only possible to take the decision because

sector, i. e. double the average of the period 1960 - 2000. this is simply to report events, not to make a value judgement. the combination of these three factors – the worsening inequality, the economic slowdown and the high profitability of the financial sector – may partly explain public opinion and the attitude of the political authorities vis - a - vis the rescue package for the financial system. this crisis reveals that in our advanced societies, which are subject to far - reaching changes that affect people ’ s daily lives, the resolution of financial crises is becoming more complex, not only in terms of costs to the community, but also in terms of decision - making procedures. there is a risk that, in order to reach the democratic consensus necessary to act effectively, matters must be pushed right to the brink so that the precipice is clearly visible. in other words, there is a risk that a mistake, such as letting a bank fail, must first be committed, and the prospect of widespread hardship must make people realise that their vital interests are at stake, before effective action can be taken successfully. the problem is particularly acute in the case of the financial system, which is inevitably prone to instability. in particular, the financial system is typically more innovative. since financial products cannot be patented, an institution ’ s ability to compete rests partly on its ability to create new products that enable it to increase returns without changing the level of risk or to diversify risk without for a given return. however, financial innovation tends to generate information asymmetries across agents, particularly between those who have created new instruments and those who buy them. such asymmetries fuel market instability, leading to a tendency to underestimate risks until they materialise, and, subsequently, to a propensity to overestimate them when markets change direction. the procyclicality of the financial sector tends to produce a disproportionate increase in its profitability at times of economic growth and a decline during slowdowns, with self - propagation and contagion effects on the rest of the economy. essentially, the financial system is of systemic importance to the economy. the stability of the system is therefore in the public interest. consequently, the system is subject to regulation and supervision. therefore, it is somewhat problematic if rejection mechanisms develop within a society preventing effective action being taken to counter a financial crisis and contagion of the rest of the economy. so, what is the