At the Treasury Department and the Fed, there was little opportunity to celebrate. On Tuesday, September 9th, stock in Lehman Brothers dropped by forty-five per cent, following reports that it had failed to secure billions of dollars in capital from a Korean bank. Lehman approached several potential buyers, including Bank of America and Barclays, the British bank. But by the end of the week it was running out of cash. On Friday evening, Geithner and Paulson summoned a group of senior Wall Street executives to the New York Fed and told them that the government wanted an industry solution to Lehmans problems. Talks continued through the weekend, but by Sunday afternoon both Bank of America and Barclays had bowed out, and word circulated that Lehman was preparing to file for bankruptcy.
Remarkably, once the potential bidders dropped out, Bernanke and Paulson never seriously considered mounting a government rescue of Lehman Brothers. Bernanke and other Fed officials say that they lacked the legal authority to save the bank. There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation, Bernanke said last month, at the Economic Club of New York. The Federal Reserves ability to lend, which was used in the Bear Stearns case, for example, requires that adequate collateral be posted. . . . In this case, that was impossiblethere simply wasnt enough collateral to support the lending. . . . We worked very hard, over one of those famous weekends, with not only some potential acquirers of Lehman but we also called together many of the leading C.E.O.s of the private sector in New York to try to come to a solution. We didnt find one. Bernanke insisted to me, too, that there was nothing he could have done to prevent Lehman from going under. With Bear Stearns, with all the others, there was a point when someone said, Mr. Chairman, are we going to do this deal or not? With Lehman, we were never anywhere near that point. There wasnt a decision to be made.
However, Bernanke and Paulson were undoubtedly sensitive to the charge, made in the wake of their efforts to salvage Bear Stearns, Fannie Mae, and Freddie Mac, that they were bailing out greedy and irresponsible financiers. For months, the Treasury and the Fed had urged Lehmans senior executives to raise more capital, which the bank had failed to do. Many analysts remain skeptical that the Fed couldnt have rescued Lehman. Its really hard for me to accept that they couldnt have come up with something, Dean Baker, of the Center for Economic and Policy Research, said. Theyve been doing things of dubious legal authority all year. Who would have sued them?
At the time, a popular interpretation of Lehman Brothers demise was that Bernanke and Paulson had finally drawn a line in the sand. (Weve reestablished moral hazard, a source involved in the Lehman discussions told the Wall Street Journal.) But less than forty-eight hours later the Fed agreed to extend up to eighty-five billion dollars to A.I.G., a firm that had possibly acted even more irresponsibly. One difference was that the Fed, in charging A.I.G. an interest rate of more than ten per cent and demanding up to eighty per cent of the companys equity, had been able to impose tough terms in exchange for its support. We felt we could say that this was a well-secured loan and that we were not putting fiscal resources at risk, the senior Fed official told me.
More important, A.I.G. was a much bigger and more complex firm than Lehman Brothers was. In addition to providing life insurance and homeowners policies, it was a major insurer of mortgage bonds and other types of securities. If it had been allowed to default, every big financial firm in the country, and many others abroad, would have been adversely affected. But even the announcement of A.I.G.s rescue wasnt enough to calm the markets.
On Tuesday, September 16th, the Reserve Primary Fund, a New York-based money-market mutual fund that had bought more than seven hundred million dollars in short-term debt issued by Lehman Brothers, announced that it was suspending redemptions because its net asset value had fallen below a dollar a share. The subprime virus was infecting parts of the financial system that had appeared immune to itincluding the most risk-averse institutionsand the news that the Reserve Primary Fund had broken the buck sparked an investor panic that by mid-October had become global, striking countries as far removed as Iceland, Hungary, and Brazil.
L'ensemble des analyses et/ou recommandations présentes sur le forum BOURSORAMA sont uniquement élaborées
par les membres qui en sont émetteurs.
Agissant exclusivement en qualité de canal de diffusion, BOURSORAMA n'a participé en aucune manière
à leur élaboration ni exercé aucun pouvoir discrétionnaire quant à leur sélection. Les informations
contenues dans ces analyses et/ou recommandations ont été retranscrites "en l'état", sans déclaration
ni garantie d'aucune sorte. Les opinions ou estimations qui y sont exprimées sont celles de leurs auteurs
et ne sauraient refléter le point de vue de BOURSORAMA. Sous réserves des lois applicables, ni l'information
contenue, ni les analyses qui y sont exprimées ne sauraient engager la responsabilité BOURSORAMA.