Feds Let Lehman Fail—Then Loaned It $138B Anyway

Paulson & Co. say cash was to 'facilitate orderly wind-down' of trades, but questions persist
By Clay Dillow,  Newser Staff
Posted Dec 16, 2008 9:20 AM CST
In this Sept. 15, 2008, file photo, Lehman Brothers world headquarters is shown in New York.   (AP Photo)
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(Newser) – After refusing to bail out Lehman Brothers, the Federal Reserve funneled $87 billion to a subsidiary through JPMorgan Chase on Sept. 15, then another $51 billion the next day. The feds say they aimed to “facilitate an orderly wind-down” of Lehman’s broker-dealer operations, Andrew Ross Sorkin writes in the New York Times, but their changing explanations, and other issues, continue to muddy the waters.

Official documents say the loan was a “carefully thought-out decision” to minimize the ripple effects of Lehman’s collapse. But Treasury Secretary Henry Paulson said the government couldn’t legally lend to Lehman; the collateral simply wasn’t there. There’s no telling if the loan averted a greater financial calamity, Sorkin writes, “but until officials explain what happened, it will remain a mystery.”