The Government bailed out Bear
Stearns, Fannie Mae, Freddie Mac and AIG because they felt that
impact would be far worse as compared to Lehman if these companies
go bankrupt. Here are some issues that Lehman was facing and they
couldn't find support from the government.
Liquidity Issue:
- Federal Crisis Inquiry Commission had a belief that the Lehman
had not enough collateral against which loans can be provided
- The concern was that whether Lehman has enough asset or
not
- Lehman was widely viewed by market participants as
insolvent
Legal Issue:
- Under section 13(3), Federal reserve can lend the money in the
case of “unusual and exigent circumstances but this needed approval
from Treasury secretary and Fed’s governing board.
- TARP (Troubled asset relief program) enacted after the collapse
of Lehman
- In case of other firms like Bear Stearns Fannie Mae, Freddie
Mac and AIG, they had a belief that these companies have liquidity
issue and the assets are there that can be used as a collateral and
failure of these companies would have far more effect than that of
Lehman.
- Government has already rescued Bear Stearns in March, so
politically it looked unviable to rescue another firm
Others:
- On September 14, deal with Barclays Bank called off as
authority from the UK had concerns about the liquidity
- Offer by Korean Development Bank at $23/share was declined by
Lehman