• 11 Sep 2008 at 3:38 PM
  • Fed

The Fed Walks The Line On Lehman

We earlier reported that officials at the Federal Reserve and Treasury are scrambling to find a buyer for Lehman Brothers, perhaps going as far as bending or waiving rules that limit the ability of private equity firms to buy sizable stakes in investment banks. Part of the rationale for this may be because the Fed and Treasury want to avoid putting its own balance sheet or taxpayer funds into what would widely be perceived as another bailout.
There seems to be an increasing consensus among commentators that Lehman won’t be bailed out by the Federal Reserve or the Treasury. Over at RealTimeEconomics, Sudeep Reddy adds color to this idea by pointing out that to Fed officials it may well appear that they have already bailed out Lehman. The primary deal credit facility gives Lehman Brothers access to the discount window, allowing it to borrow cheaply against collateral arguably priced at inflated values. Indeed, Bill Gross of Pimco has publicly cited the facility as preventing him from withdrawing from trades with Lehman on the other side.
What’s more, the Treasury and the Fed may want to reduce the moral hazard issue in the market by allowing an institution to fail, Reddy says. But its not clear that they will have the luxury of adding discipline to the market. Lehman is deeply intertwined in the credit markets, particularly, and its failure could have unwanted ripple effects, rocking the stability of the broader financial markets. A better solution, some at the Fed believe, would be to find a willing buyer and arrange private financing without a Fed backstop. This most likely explains the Fed scramble to find a buyer.
Would the Fed Let Lehman Fail? [Wall Street Journal]

21 comments (hidden to protect delicate sensibilities)
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Comments (21)

  1. Posted by guest | September 11, 2008 at 3:50 PM

    Robert Rubin and Lawrence Summers were on Charlie Rose last night and said that irregardless of any potential moral hazard repercussions, the fed cannot let Lehman fail because of the interconnectedness to their counterparties. That will have to be bailed out.

  2. Posted by guest | September 11, 2008 at 3:52 PM

    irregardless? were they conversating?

  3. Posted by guest | September 11, 2008 at 3:54 PM

    no–the ladder

  4. Posted by guest | September 11, 2008 at 3:55 PM

    this is dumb. the interconnected parties are just as guilty as lehman because they didnt do enough due diligence before they got intertwined. they deserve to fail also.

  5. Posted by guest | September 11, 2008 at 3:56 PM

    If I were LEH right now I would be increasing my level of interconnectedness as much as possible in an attempt to force the Fed’s hand. No matter the risk/reward of the trade, if it makes me more interconnected then all aboard!

  6. Posted by guest | September 11, 2008 at 3:56 PM

    yes yes- teach the whole world a lesson

  7. Posted by guest | September 11, 2008 at 3:56 PM

    Reuters is saying that JPM put a bid in for WaMu earlier this year (prior to BSC acquisition/bailout) but was rebuffed by Kerry Killinger (x-ceo).
    That would mean that JPM bid for WM when the stock was around $25.
    Nothing like the delusions of a “confident” CEO!
    Stock is up since this report came out so obviously rumor must be JPM may want WaMu….

  8. Posted by guest | September 11, 2008 at 3:57 PM

    @2 that be funny yo

  9. Posted by guest | September 11, 2008 at 3:59 PM

    Bbrg reporting BAC for LEH

  10. Posted by guest | September 11, 2008 at 4:01 PM

    @2 if it’s good enough to make it into webster’s and american heritage, it’s good enough for my lexicon.
    mom not give you enough attention before leaving for your worthless english degree?

  11. Posted by guest | September 11, 2008 at 4:02 PM

    DOES ANYONE THINK BAC WOULD MAKE A PREMIUM BID TO TODAYS CLOSE.
    CAN BAC EVEN DO THIS?

  12. Posted by guest | September 11, 2008 at 4:03 PM

    Lehman is not the one who will be bailed out here– it is Private Equity (which is on the downswing) who will be bailed out, after an exception is made to the source of strength doctrine.

  13. Posted by guest | September 11, 2008 at 4:05 PM

    @8 that comparison doesn’t even make sense yo. irregardless is disputed b/c it’s a double negative, conversating is not…

  14. Posted by guest | September 11, 2008 at 4:06 PM

    Lehman is not the one who will be bailed out here– it is Private Equity (which is on the downswing) who will be bailed out, after an exception is made to the source of strength doctrine.

  15. Posted by guest | September 11, 2008 at 4:07 PM

    “I’ve had about all I can take in investment banking” (Unless I can buy another investment bank.)

  16. Posted by guest | September 11, 2008 at 4:34 PM
  17. Posted by guest | September 11, 2008 at 4:48 PM

    If Robert Rubin said that…he must be looking to plant himself at Lb after Df goes down. And Larry Summers…shouldn’t he be defending Erin Callan or something?

  18. Posted by guest | September 11, 2008 at 4:48 PM

    10: since you bring up Webster’s, you should probably learn what it means when they label a word “nonstandard.” Also see their usage note:
    “Irregardless originated in dialectal American speech in the early 20th century. Its fairly widespread use in speech called it to the attention of usage commentators as early as 1927. The most frequently repeated remark about it is that “there is no such word.” There is such a word, however. It is still used primarily in speech, although it can be found from time to time in edited prose. Its reputation has not risen over the years, and it is still a long way from general acceptance. Use regardless instead.”

  19. Posted by guest | September 11, 2008 at 5:00 PM

    Dictionaries don’t make words words, people do. If someone says something, and you know what it means, its word, irregardless of whether or not its in the dictionary. Get over it.

  20. Posted by guest | September 11, 2008 at 7:04 PM

    Exactly, spoken language appeared long before any dictionary. To claim that you only use “standard words as defined by Webster’s” is impossible and a lie.

  21. Posted by guest | September 12, 2008 at 2:22 AM

    When using the word ‘irregardless’ think about how stupid you sound to intelligent people. Feel free to use it, but don’t pretend it’s correct.