Why Lehman? Why now?
Just one question today: Why now, all of a sudden, have the Fed and the Treasury decided to do the right thing and let one of these rotten-to-the-core financial titans go into liquidation?
Except, of course, that's not quite what's happening. Lehman itself isn't getting a bailout, but the big-money boys who might wind up as collateral damage can show up at the Fed this morning and borrow at very generous terms.
But the question remains: If Bear Stearns merited $29 billion in federal guarantees to JPMorgan Chase, and if Fannie and Freddie are worth a yet-to-be-determined amount on Uncle Sam's balance sheet, why is Lehman getting thrown under the proverbial bus?
My hypothesis is that Paulson and Bernanke is still trying to figure out how much they'll be on the hook for Fannie and Freddie, and thus how much they're going to have to monetize — that is, print new dollars to make up the difference. Refusing to take on anything else at the moment has the added benefit (for them) of propping up the dollar and driving down commodities further (oil below $100 this morning? Huh?) before the inevitable inflationary binge.
But that's only a hypothesis. It assumes some sort of logical calculus at work, and that might be assuming too much. What say you? Let 'er rip in the comments.
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Probably the shake of a magic eight-ball chose Lehman’s fate sometime in the past few days. There has not been any logical thought at the fed in awhile, doubt there has been improvement in the face of crisis. Avoiding utter catastrophe requires losers, Lehman is the sacrifice of the moment.
Comment on September 15, 2008 @ 12:01 pm
Sacrificial lamb.
From the link:
“WASHINGTON (AP) — Treasury Secretary Henry Paulson says the American people can remain confident in the “soundness and resilience in the American financial system.”
Briefing reporters at the White House, Paulson said he “never once” considered it would be appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers. The nation’s fourth largest investment bank filed for bankruptcy protection earlier Monday.”
Comment on September 15, 2008 @ 1:54 pm
With the Fed credit facilities working overtime, I think it’s obvious government money will be involved somewhere in this process. Seems like your call is right on the money. Pun intended.
Comment on September 15, 2008 @ 1:58 pm
It makes no sense. Isn’t this insider capitalism at it’s very worst. Bernarke and Paulson kept JP Morgan in the game, killed off Bear Stearns, but gently and let Lehman fall flat on their face. Maybe Feld pissed of his buddies on the NY Fed?
We have arrived at the point where the government is literally picking winners and losers. That’s not capitalism, it’s cronyism.
Comment on September 15, 2008 @ 2:37 pm
It would be a trend if they let the rest of the chips fall where they may, but somehow I doubt that’s going to happen. I suspect both AIG and WaMu will get saved, in some form, even if it’s only the Bear Stearns organzied government sanctioned looting.
Comment on September 15, 2008 @ 2:39 pm
Hey, I figured out how to win at the Parker Brothers Monopoly board game when company comes over thanks to our Federal Reserve ! I buy some spare games boxes full of extra play money and when I start to lose, I just reach over and pull all the play money from one of the other spare games, then I double the price of everything on the board and say that I’m the only one who can do this because it’s my boardgame. The family says this is cheating but I just tell them that I’m acting just like our Federal Reserve does. I get to double all the existing play money in the game, all the price in that game get doubled but all the other players still only have the money they had from the previous play. This really pisses them off ! I call the move my Fed Discount Window move and only I’m allowed to do it! You should here the wails of cheating from family and friends!!! It almost comes to fist-a-cuffs !!!! LOL They are so much smarter than people who play with US Dollars !
Comment on September 15, 2008 @ 4:09 pm
fear..
they nationalized (bailed out) trillions of dollars of debt on the taxpayer’s expense last week. if they did Another bailout a week later, fuses would start burning in the public arena, i believe they are walking the fine line between corrupt bailouts and public perception of said corruption.
Comment on September 15, 2008 @ 4:23 pm
zimtran @ 6
That is funny. Good analogy for the Fed.
Personally, I still don’t understand why their isn’t more outrage over the incestuous relationship between the big Wall Street banks and the Fed. They are the only private businesses in America that, when they are tight for cash, can just (legally) print money out of thin air. A state sanctioned monopoly on counterfeiting. Incredible.
Comment on September 15, 2008 @ 5:06 pm
Oh I know. I saw on the TeeVee set this afternoon that Lehman employees donated more money to the Obama campaign ($293,000?) than they did to McCain’s campaign ($123,000?). Everything is politics in DC.
Comment on September 15, 2008 @ 5:31 pm
I think the Feds are mindful of the moral hazard that’s been introduced into the system with all these bailouts. Lehman has been a slow moving train crash for a few months now -giving enough time for the serious money to reposition. Politically this one wasn’t going to fly.
Comment on September 15, 2008 @ 7:37 pm
I concur with Chad and the sacrificial lamb theory. I’ve been waiting for one to be slaughtered since the time that Paulson/Bernanke started saying that they “were not afraid to let an institution fail,” thus refuting the implicit “too big to fail” doctrine.
It’s all about the show folks. A failure isn’t a failure, and a bail-out isn’t a bail-out.
They’re just words, after all. It isn’t like they mean anything.
Comment on September 15, 2008 @ 8:40 pm
Ok, I just read the FRB release linked above, and see that “no taxpayer money” = an expansion of allowable collateral to anything, and that the TSLF auctions are expanding from bi-weekly to weekly (doubling), and increasing from “125 to 150 billion per auction” as they put it. Of course, I’d put it as an increase from 250 to 600 billion per month, but then folks might notice…
But hey, that ain’t your money, it’s theirs, they created it! You’re just the sucker that gives the notes value, thanks to that gun to the head.
Comment on September 15, 2008 @ 9:23 pm
Why did they let Lehman fall? Easy, election year politics! McCain, in a panic that his party would get the blame for all these taxpayer funded bailouts, calls GWB who calls Paulson and bingo! no Fed bailout for Lehman.
Remember, we’re presently in that once every 4 year window where the politicians actually need us, before they show their true colors and discard us like the Klennex tissues and Dixie cups they really see us as.
Comment on September 15, 2008 @ 9:26 pm
Think like a self-interested bureaucrat. They did what they needed to do to keep their jobs. i.e. the minimum that would allow them to shift the blame but the maximum to avoid actual leadership. Now that they have already “done something”, they can just go through the motions while actually doing nothing. (Like the staff at the DMV)
Bottom line, the Fed and Treasury will do nothing from now on to save AIG, Wamu, Wachovia or anyone else. They are on their own. What’s worse, everyone will soon realize this and will react accordingly. Strong hand protect their assets, fly from risk while weak hands rediscover life in the slow lane. A deflationary collapse is days (hours?) away where money changes definitions.
Comment on September 16, 2008 @ 3:40 am
If you have to let someone fail to let the world know you mean business, it may as well be the one run by people that contribute to Democrats. MAN is that dirty-looking…
Comment on September 16, 2008 @ 10:11 am
American style capitalism at it’s finest hour. You can see why a lot of us are going to support Obama’s brand of socialism. Even he is against bailing out corporations with taxpayer money. That money is going to be needed for reparations. To the victor belongs the spoils, unless you want us to riot again.
Comment on September 16, 2008 @ 11:07 am
I think it may be just as simple as the fact that people are coming to realize that they simply can not pay all the trillions and trillions of debt that has been accumulated since world war II. Bailouts may save jobs, but the debt still exists somewhere. The bankruptcy procedures are really the only way that debt can actually disappear.
Comment on September 16, 2008 @ 12:00 pm
Can Bernanke attach some of those CDO’s and other crap they bought via the auctions to the sinking ship of Lehman, thus clearing their books to buy more from closer friends?
Comment on September 16, 2008 @ 12:05 pm
Storm? any port in a storm?
OTC derivatives?
Good vs. Bad Banks?
“There are still many sound, profit making
firms.” But, ‘oft derivatives dealers
kept sloppy books, traded over the counter,
with no regulation/record keeping,’ says
critics. See “what happens if, when the
frb, fdic, run low on capital/reserves?”
Set up good v. bad banks?
Comment on September 16, 2008 @ 2:34 pm
The Fed, unless it decides to literally run the printing presses day and night, thus going the way of Weimar Germany, circa 1923, has only one “tera- bailout” left in it; that one is being saved for the day that Bernanke bails out J.P. Morgan- Chase. Remember: the Fed, J.P. Morgan- Chase, and the House of Rothschild are one- in- the same! So, it’ll be a reprise of 1931, when Herbert Hoover bailed out the House of Morgan the first time around.
Comment on September 16, 2008 @ 3:43 pm
Lehman’s CEO must have PO’ed comrade-in-theft brother Hank in order to be left out to dry like that. Bonner has it right, can you say “b-a-n-k-r-u-p-c-y l-a-w-y-e-r-s”?
Comment on September 16, 2008 @ 4:07 pm
Just my random guess:
The Fed is probably trying to engineer an impression that the government will not just come bailing out every company in the financial industry. This is to prevent companies considering taking on Lehman’s path from actually doing so. It also signals to everyone in the world that the U.S government doesn’t believe that things has gotten so bad that nationalization of the whole financial sector is needed.
To the extent that financial industry heavily relies on the confidence of the mass, a healthy positive impression of the U.S financial sector is necessary to prevent the sector’s collapse. And the worst thing that can happen is for a bunch of major financial companies to declare bankruptcy all at around the same time which will completely destroys that confidence. Thus, Lehman became the sacrificial lamb in Fed’s public relation compaign to paint a better picture for the U.S financial sector.
Comment on September 16, 2008 @ 11:41 pm
LOL, I like justabrother ! He’s really got reparations on the brain. You go dude! They’ll print up all the paper money ya need nowadays LOL, how much do yawl need for us to call it even ?! HaHaHaHaHaHa!!!!! But then again, I think we could use a good riot today. Why don’t people riot like they use to in the sixties ? Oh yeah, I forgot, now big brother has got himself tasers and pepper spray and homeland security laws and prisons and don’t take no more of that first amendment/freedom of assembly crap from the people!
Comment on September 17, 2008 @ 3:13 am
[...] we now have a partial answer to the question I posed Monday, which was why did the Fed and the Treasury suddenly decide to get free-market [...]
Pingback on September 17, 2008 @ 8:51 am
For God’s sake people,what’s wrong with all of you?!!!
You just forgot simple Aritmetic?…Second or third grade?…
Lehman filed for banckrupcy protection with 630 BILIONS dollars and some change in liabilities.In the same time, officially, the Feds had on their books 195 billions $ as reserve.If they would bail out Lehman, even a kindergarden kid would start to ask how they did that. So actually they had no choice…
Anyway, don’t cry to much on Lehman’s coffin, because actually they are not dead…they OWN a piece of Federal Reserve!…
Comment on September 20, 2008 @ 12:05 am
[...] failure was some sort of organic phenomenon. But even at the time we knew there was a deliberate decision to let Lehman go under. And as I pointed out last month, it was a truly boneheaded move if [...]
Pingback on December 31, 2008 @ 9:59 am