Fed May Have Outmuscled Other Lehman Creditors

Government creditors got their cash back; private investors still struggling
By Jason Farago,  Newser Staff
Posted Oct 2, 2009 8:05 AM CDT
Tim Geithner, formerly head of the New York Fed and now Treasury secretary, speaks next to Ben Bernanke on Capitol Hill.   (AP Photo/Evan Vucci, File)
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(Newser) – A special court examiner investigating the Lehman Brothers bankruptcy is trying to determine whether the Fed used its clout to get its money back from the collapsed bank ahead of other creditors. The central bank and its New York branch lent Lehman $46 billion before the bankruptcy but was promptly paid back 100% of the loan—while dozens of other creditors remain tied up in court trying to get tens of billions in debts untangled.

Bankruptcy lawyers tell the Wall Street Journal that a ruling against the Fed would open the door for creditors to recover assets from the central bank, although the Fed may try to claim immunity from suits. Regardless of the conclusion, private investors are hoping that the investigation sheds light on a question that's worried many—just how much special treatment the government received when it became a player in the markets.