What's wrong with this picture?

[TPS]

Big banks did not get big because of the Fed, especially since the Fed didn't regulate all of the big banks, and Lehman & Bear Stearns weren't banks in the first place, and neither was AIG. And no, Lehman did not have all funding options available to it, as Fed opened up its discount window to investment banks only AFTER Lehman had filed. Granted that Lehman was still rolling the dice on repo funding during the summer before its filing, but the firm was miffed that Fed didn't let it use the discount window sooner. Also, little is talked about Bank of England not allowing Barclays to buy Lehman prior to bankrputcy filing. A lot of things happened that in retrospect should have been done differently.

Lehman did approach the Fed, but they were turned down. Paulson (I suppose with Bernanke's agreement) was determined to send a message about moral hazard to the markets, and he sure did.