The Lehman bankruptcy is widely considered to be the watershed event that changed the rules of the game for those Wall Street banks considered "too big to fail." The bankruptcy option was ruled out once and for all. The taxpayers would have to keep throwing money at the banks, no matter how corrupt, ill-managed or undeserving. As Dean Baker noted in April 2009:

"Geithner has supposedly ruled out the bankruptcy option because when he, along with Henry Paulson and Ben Bernanke, tried letting Lehman Brothers go under last fall, it didn't turn out very well. Of course, it is not necessary to go the route of an uncontrolled bankruptcy that Geithner and Co. pursued with Lehman. . . . [But] the Geithner crew insists that there are no alternatives to his plan; we have to just keep giving hundreds of billions of dollars to the banks . . . , further enriching the bankers who wrecked the economy."

Although Lehman Brothers filed for bankruptcy on Monday, September 15, 2008, it was actually "bombed" on September 11, when the biggest one-day drop in its stock and highest trading volume occurred before bankruptcy. Lehman CEO Richard Fuld maintained that the 158 year old bank was brought down by unsubstantiated rumors and illegal naked short selling . Although short selling (selling shares you don't own) is legal, the short seller is required to have shares lined up to borrow and replace to cover the sale. Failure to buy the shares back in the next three trading days is called a "fail to deliver." Christopher Cox, who was chairman of the Securities and Exchange Commission in 2008, said in a July 2009 article that naked short selling "can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions." By September 11, 2008, according to the SEC, as many as 32.8 million Lehman shares had been sold and not delivered - a 57-fold increase over the peak of the prior year. For a very large company like Lehman, with plenty of "float" (available shares for trading), this unprecedented number was highly suspicious and warranted serious investigation. But the SEC, which was criticized for failing to follow up even on tips that Bernie Madoff's business was a ponzi scheme, has yet to announce the results of any investigation.

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