Lehman Brothers Holdings, the bank's holding company, files for Chapter 11 bankruptcy protection and says it will try to sell key business units.
Investor concern now turns to the fate of AIG, fearing a liquidity crisis. Rating agencies cut AIG's credit rating.
Despite reassurances about the economy from Paulson and President George W. Bush, the stock market plummets. The Dow Jones industrial average drops more than 504 points, or 4.4 per cent, the biggest loss since right after the September 11, 2001, terror attacks.
The failure also roils overseas stocks, sending them plunging. Meanwhile, concerns about a slowing economy take oil below the psychological benchmark of $100 a barrel, its lowest level since February.
Image: Traders react as stocks plunge on the New York Stock Exchange | Photograph: Spencer Platt/Getty Images
Also read: Strong push for an RTC-type solution to the crisis
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