I Hope This Is BS From Bernanke

Fed Chairman Ben Nernanke spread gloom at a speech to a Wall Street crowd, then spread fear afterwards with this Q&A:

Asked about whether the government should have stepped in to prevent the mid-September bankruptcy of Lehman Brothers Holdings Inc., Bernanke said the government's hands were essentially tied. "There were no rules and no funding that allowed us to address that situation."

While the Fed and Treasury officials "worked very hard with potential acquirers," the trouble plaguing Lehman was beyond the capacity of the existing regulatory framework."

I score that as a 95% probability of being BS, the idea being Bernanke does not want to engage in finger pointing or admit that the steady hands on the tiller blew it.

But if he is serious in telling us that the Fed and Treasury lacked the resources and authority to bail out Lehman, whose prospects for demise had been discussed for months (resources they discovered 48 hours later to prop up AIG after it was suddenly struck by lightning), then, well, yike!  Let me go buy some T-bills while I ponder the fragility of our financial system and the impotence of the people in charge.

           

Comments

[hrtshpdbox]

I don't know, I didn't read or hear all of the comments, but from what you quote above it sounds like he's saying "The framework that could've saved Lehman wouldn't come into existence for a few more days so, yes, we probably could've and should've save them too but, no, I'm not going to admit that outright. I'm already anticipating the lawsuits, please don't make it worse for me."

[LindaK]

Your BS detector is probably accurate. Notice how the Coldman connected companies got the deals? Many former LEH employees believe this conspiracy theory.

[Gmax]

Golman is left standing because it was not as stupid as Lehman, nor was it bereft of assets. Plus it has the reputation of being the Mercedes Benz or the gold standard of the investment bankers. That is backed up by what Warren Buffett did, he bought the name and the superior earning power he believes that name brings. Lehman is now Barclays, so a lot of Lehman employees found a a very soft seat, but of course not all of them. Working in a bankrupt company is no fun, so I can understand the grousing.

[Gmax]

Golman = Goldman

Sheesh

[DEV]

AIG insure New Orleans?

[Pagar]

"Working in a bankrupt company is no fun"

This sounds even worse:

"Dispatch From Iceland: ‘We Might Lose Our Country’

"Iceland’s central bank today slashed its key policy rate for the first time since 2003 in an unscheduled announcement as the country remains perhaps the hardest hit in the financial crisis. The nation fell into crisis last week on concern that the Icelandic authorities couldn’t back up debt obligations of the struggling, almost entirely domestic-owned banking sector. Meanwhile, international trading in the krona has since all but stopped due to low confidence in the currency. Amid such broad turmoil, sometimes the plight of the average citizen gets lost.

LUN

[glasater]

Folks--Please read Pagar's above link. I put it into my LUN also.

The Icelandic folks are a sturdy lot and may come out of this mess better than those of us in the US. They know they're history--which we do not.
Knowing one's history is important in times like this and although Iceland is going through such a time is an example we here in the US can certainly learn from by these people's courageousness.

[srp]

My problem is the assumption that letting Lehman go was a mistake. To the contrary, the mistake was bailing out AIG. We need a lot more merging and purging. I am also very uncomfortable with the feds ramming their "voluntary" purchases of preferred stock down the institutions' throats. It sounds like something that would happen under Vladimir Putin.

[Richard Aubrey]

I heard a rumor that a European treasury official begged the US to take care of AIG because they'd bought some bad-loan-insurance from AIG, in the amount of $3 mill. That was additional pressure on the fed.
Lehman probably didn't have that kind of problem.

[Barney Frank]

According to Paulson on Kudlow's show, without a buyer for Lehman the Fed and Treasury's hands were tied, unlike Bear Stearns where JPM was the buyer.

Whether it is true or not I don't know, but that's the story.

[RichatUF]

Richard Aubrey-

That is true and the CDO portfolio they had with Euro zone banks is est. at closer to $300 billion. The Fed itself didn't have the balance sheet to do the deal, nor the authority, because AIG is an insurance company, which is one of the reasons the NY Fed was pressed into service.

Barney-

One of the problems with the Lehman deal was that every time a deal looked like it was done, Fuld would come along and drop some more bad news. That was what killed the Korean Development Bank deal and the beginning of the death spiral. After KDB took a pass it was easy for others to come along with the gas and matches. There wasn't much left for the Fed or Treasury to do once the bear raids poured gasoline on the carcass and the cds traders brought the matches.

[Chris]

Rich,
My understanding wasn't that the Koreans took a pass but that Fuld turned them down. In hindsight that was a terrible mistake. Not sure they would have been saved even if the deal got done but they might have had a chance.

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