These problems were compounded by a distinct disregard for economic fundamentals, which led many borrowers and lenders to discount the risk of a correction in house prices long after activity in the U.S. housing market had peaked.
The failure of Lehman posed risks. But the troubles at Lehman had been well known for some time, and investors clearly recognized – as evidenced, for example, by the high cost of insuring Lehman's debt in the market for credit default swaps – that the failure of the firm was a significant possibility.