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After watching the movie, I still couldn't understand the doubt and scare the SEC chairman had to ask Lehman to file for bankruptcy.

Could someone explain why this was a problem to tell them straight to file for bankruptcy in those troubled times? Is it that it wasn't lawful for the SEC to do that at that time? Or is it common sense for a regulator that this is simple no-no?

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Bankruptcy was the only way to ensure an "orderly" disposition of creditor claims by creating a queue for creditors to make claims for seeking reimbursement through the bankruptcy proceedings. Without bankruptcy, Lehman's remaining cash was rapidly being depleted by margin calls they were having to honor. Bankruptcy froze any further such margin calls pending determinations from the bankruptcy at a later date. For the sake of the overall market, the SEC chairman does have extraordinary powers to compel such an order to be followed, especially when it is clear that a company like Lehman is the one domino that can cause all the rest to fall if it goes down. Besides, what better cover for the management of Lehman to use as an excuse for doing what they knew they were inevitably going to have to do other than state they were only doing so at the order of the SEC?

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Movies often use poetic license, departing from the facts in order to make the movie more entertaining. "The Big Short" definitely did this. I didn't see "Too Big To Fail" so I don't know how realistic their portrayal of the Lehman situation was. However, since I was net short a number of Lehman issues in 2008, I was tuned into it and here's my recollection. Google for more precise post game analysis.

Merrill Lynch and Lehman were foundering. Bank of America appeared to be interested in Lehman. I don't know if BOA was gaming the situation or not but at the last minute, they scooped up Merrill. That left Paulsen holding the bag.

Paulsen and the regulators scrambled all weekend to find another suitor. Barclays Bank was interested but wanted a lot of US financial banking. However, TARP had not yet passed so the Fed could offer none. To make things worse, it would have taken 30 days for Barclay to get shareholder approval for the deal. Unfortunately, Lehman had run out of cash and couldn't fund operations. It wasn't a question of asking them to file. With no suitors to bail them out, they HAD to declare bankruptcy.

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