One year ago, the US authorities allowed Lehman Brothers to collapse, unleashing chaos. Capital markets froze, banks stumbled and a cascade of collapses seemed imminent. The financial system was seized with fear. A high speed repeat of the American banking crisis that underpinned the unique misery of the 1930s threatened.

The US authorities were, however, right to allow Lehman Brothers to fail. They could not know how awful it would prove to be, and, when it comes to saving failing companies, governments should err on the side of inaction. Capitalism relies on the discipline provided by the lure of wealth and the fear of bankruptcy.

Indeed, the objective of policy must now be to make sure that, the next time that a major bank founders, there is no need for governments to step in and save other institutions, as they had to do in the aftermath of the Lehman collapse, when they fought to avert a second Great Depression.