Tags: Lehman Brothers | bankruptcy | Federal Reserve | Bernanke

Researcher: Fed Could Have Saved Lehman Brothers From Bankruptcy

Researcher: Fed Could Have Saved Lehman Brothers From Bankruptcy
Richard Fuld Jr., former chairman and CEO of Lehman Brothers, testifies during a Financial Crisis Inquiry Commission hearing in Washington six years ago. (AP Photo/Carolyn Kaster)

By    |   Friday, 22 July 2016 02:29 PM

The collapse of Lehman Brothers in a record-setting bankruptcy could have been avoided, but the political will was lacking at the Federal Reserve to rescue the troubled investment bank, according to newly published research.

“Fed officials have not been transparent about the Lehman crisis. Their explanations for their actions rest on flawed economic and legal reasoning and dubious factual claims,” says Laurence M. Ball, chairman of the economics department at Johns Hopkins University and author of the report.

Lehman’s $639 billion bankruptcy filing occurred as a bubble in the U.S. housing market contracted from a 2006 peak. The U.S. economy fell into the deepest recession since the Great Depression in the months after the bankruptcy as unemployment jumped to a 30-year high of 10 percent.

Ball’s research concludes that the Fed did have the legal authority to bail out Lehman, whose collateral was deeply impaired. But Lehman’s crisis occurred amid a backlash against government bailouts of Bear Stearns, Fannie Mae, Freddie Mac and AIG.

“By focusing narrowly on a claim by the Fed that it had no choice but to let Lehman fail, Professor Ball, in his 214-page paper, has brought much needed clarity and rigor to the historical record,” according to columnist James B. Stewart in the New York Times. “His conclusions directly contradict accounts in testimony, memoirs and myriad media interviews by the principal decision makers — Henry M. Paulson Jr., the former Treasury secretary; Ben S. Bernanke, then the Fed chairman; and Timothy F. Geithner, who was president of the New York Fed.”

“I’m not trying to judge them or say I or anyone else would have done any better,” Ball said, according to the newspaper. “There was extraordinary political pressure not to bail out Lehman, and it would have been very difficult to go against that. But that’s completely different from what they’ve said. The record needs to be set straight.”

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The collapse of Lehman Brothers in a record-setting bankruptcy could have been avoided, but the political will was lacking at the Federal Reserve to rescue the troubled investment bank, according to newly published research.
Lehman Brothers, bankruptcy, Federal Reserve, Bernanke
315
2016-29-22
Friday, 22 July 2016 02:29 PM
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