The panic then spread to the stock market

The panic then spread to the stock market. The financial system suffered cardiac arrest and had to be put on artificial life support.
How could Lehman have been left to go under? The responsibility lies squarely with the financial authorities, notably the Treasury and the Federal Reserve. The claim that they lacked the necessary legal powers is a lame excuse. In an emergency they could and should have done whatever was necessary to prevent the system from collapsing. That is what they have done on other occasions. The fact is, they allowed it to happen.
On a deeper level, too, credit default swaps played a critical role in Lehman's demise. My explanation is controversial and all three steps of my argument will take the reader to unfamiliar ground.