Tuesday, December 16, 2008

The Fish Are Really Beginning to Stink in the Lehman Non-Bailout

Last week came news that GW's cousin George Herbert Walker was able to buy the crown jewel of Lehman, Neuberger Berman on the cheap for $1.2 billion with no money down.

Today, NYT's Ira Ross Sorkin is breaking news of some activities at the time of the bankruptcy that can't seem to be properly squared by Hank Paulson and company:

In the early hours of Sept. 15, after the government refused to rescue the foundering Lehman Brothers, something odd happened. The Federal Reserve lent tens of billions of dollars to a subsidiary of the newly bankrupt bank.

In other words, government officials who had refused to risk taxpayers’ money on Lehman before it collapsed did just that after it collapsed.

On Monday the Fed lent the Lehman unit $87 billion through JPMorgan Chase. After being repaid on Tuesday, it lent another $51 billion — putting the bailout, arguably, in the same league as the initial $85 billion bailout for the American International Group.

This mystery loan is just one piece of the larger Lehman puzzle. Who lost Lehman? Why, and how? Three months later, those questions still nag...

...no one, least of all government officials, has fully explained why Lehman, one of the grand old names of Wall Street, was allowed to fail while so many others were rescued...

he recently disclosed documents detailing the Fed’s loan to Lehman’s subsidiary cast some light on a failed effort to prevent Lehman’s implosion from cascading through the financial system.

The loan, according to these documents, was a “carefully thought-out decision” to stabilize the market by propping up Lehman’s broker-dealer business, called LBI New York, so it could stay afloat long enough to “facilitate an orderly wind-down” of tens of thousands of trades with the other Wall Street firms. The unit was kept out of the Lehman bankruptcy.

That might seem like a reasonable explanation. But Henry M. Paulson Jr., the Treasury secretary, and Ben S. Bernanke, the chairman of the Fed, have said that they did not have legal authority to lend any money to Lehman. The firm, officials said, did not have enough collateral.

“We didn’t have the powers,” Mr. Paulson insisted. He also said Lehman’s bad assets created “a huge hole” on its balance sheet, adding that he had actually tried to find a way for the government to provide money to help support a deal between Lehman and Barclays, but legally could not. His explanation has evolved over time, however. He told reporters the day after Lehman went bankrupt: “I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers.”...

Whatever the case, the Fed’s loan to the Lehman subsidiary makes all these explanations increasingly hard to square. Mr. Paulson said Lehman had lacked the collateral for the government to backstop a deal between Lehman and Barclays. But then the Fed turned around and lent a Lehman subsidiary billions, based on that same collateral.
Bottom line, Hank Paulson did not like Lehman and so he took it down. The payoff to the Bushies, so that they would go along, was Neuberger Berman, no money down.


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