September 16, 2008

IF YOU HAVE SUFFICIENT ASSETS TO COVER LIABILITIES...:

Orchestrating a Process Neither Neat Nor Fair (Steven Pearlstein, September 16, 2008, Washington Post)

Ever since last week, when it became apparent that Lehman Brothers had lost the confidence of investors, the Treasury secretary was ready to gamble that financial markets could withstand the collapse of one of its most venerable investment banks.

By that time, regulators had had enough time to comb through Lehman's books and determine that its assets were likely to cover most of its liabilities at the end of an orderly liquidation. [...]

So when the masters of the financial universe gathered at the Federal Reserve Bank of New York over the weekend and told him they wouldn't participate in a Lehman rescue without some sort of government guarantee limiting their losses, Paulson was ready to call their bluff. He said to them, in effect, if you're not worried that a Lehman failure would trigger a market meltdown that would take you down with it, then neither am I.

In the end, it was the financiers who blinked. Although they weren't worried enough to underwrite a Lehman rescue, they were worried enough to commit resources to restoring stability to the markets and complete the restructuring and recapitalization of the industry. Bank of America, spotting what looked like a bargain, ponied up $50 billion in stock for Merrill Lynch, the next likely Wall Street domino to fall. And a group of the biggest banks agreed to make $70 billion available to any financial firm in need of short-term cash.


...why should you be granted bankruptcy?

Posted by Orrin Judd at September 16, 2008 6:17 AM
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