Christine Lagarde, the French finance minister, warned her US counterpart Hank Paulson that he had to bail out US investment bank Lehman Brothers or face global financial collapse, but her advice went unheeded.
Christine Lagarde, the French finance minister, warned her US counterpart Hank Paulson that he must bail out US investment bank Lehman Brothers or face global financial collapse, but her advice went unheeded. Photo: Reuters
Sources close to Mrs Lagarde said that she had called the US Treasury Secretary – a close personal friend – well before the ailing bank’s collapse imploring him to act, but he chose not to.
Lehman Brothers’ demise sparked the biggest shake-up on Wall Street in decades and sent shock waves around the world that triggered a massive bailout plan in Britain and Europe.
Mrs Lagarde – attributed with playing a key role in brokering a bailout deal among G7 finance ministers in Washington last weekend – dubbed Mr Paulson’s decision to let the bank go under “horrendous” as it triggered panic in markets and banks to the brink of a 1929-style financial meltdown.
In an interview with the Daily Telegraph, she warned that the world’s hedge funds could be the next institutions to be hit by the financial turmoil.
Mrs Lagarde, a perfect English speaker, said that governments must be “vigilant” over the health of hedge funds. “Initially everybody thought the hedge fund sector would be the first one to actually cause the collapse. They are vastly unregulated, they have been operating at the fringes, at the margin, and we need to be careful that there is no contamination effect,” she said.
– Hedge funds shake in the teeth of financial storm
– US hedge funds suffer heavy withdrawals
Her warning will send a shiver through the $2 trillion (£1.15billion) hedge fund industry, which has doubled in size in the last three years and proved to be one of the most powerful forces in the global financial system.
Read moreFinancial crisis: Christine Lagarde warned Hank Paulson to bail out Lehman Brothers