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Wait … what? Ten years later, the process of winding down Lehman is nearing completion, but there are still claims and lawsuits to settle. Our mission at Marketplace is to raise the economic intelligence of the country.
Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting. Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. Skip to content. Divided Decade. Share Now on:. Two employees of Christie's auction house manoeuvre the Lehman Brothers corporate logo on Sept. Share Now:.
This question is controversial among students of the financial crisis. Others say that policymakers were concerned about moral hazard: they feared that rescuing Lehman would encourage excessive risktaking by other firms. Yet Fed officials insist that none of these views is correct. The people in charge in , from Ben Bernanke on down, have said repeatedly that they wanted to save Lehman, but could not do so because they lacked the legal authority.
In his memoirs p. This paper seeks to set the record straight on why the Fed did not rescue Lehman Brothers. I base these broad conclusions on the following findings:. Lehman might have survived indefinitely as an independent firm; it might have been acquired by another institution; or eventually it might have been forced to wind down its business. Any of these outcomes, however, would likely have been less disruptive to the financial system than the bankruptcy that actually occurred.
If legal constraints do not explain the non-rescue of Lehman, then what does? The available evidence supports the theories that political considerations were important, and that policymakers did not fully anticipate the damage from the bankruptcy.
The record also shows that the decision to let Lehman fail was made primarily by Treasury Secretary Henry Paulson. Fed officials deferred to Paulson even though they had sole authority to make the decision under the Federal Reserve Act. Where Goldman comes into the picture boggles me.
To read the rest of my article on Guru Focus click here. Updated on Sep 13, , am. Sign in. Log into your account. Privacy Policy. Sign up. Password recovery. Tuesday, October 26, Forgot your password?
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