Why the Fed bailed out AIG but not Lehman brothers.
federal officials had tried to get the private sector to pony up some funds. But when that effort failed, Fed Chairman Bernanke, New York Fed President Timothy Geithner and Treasury Secretary Paulson concluded that federal assistance was needed to avert an AIG bankruptcy Bernanke also believed that the government lacked legal authority, and he focused on Lehman's lack of collateral as the key problem. The Federal Reserve could only make a loan, he explained, if collateral supported it. wever, Bernanke explained to Valukas that by mid-September, Lehman lacked "any" collateral. Bernanke believed Lehman was insolvent as of Sept. 8. Giving Lehman a loan then would be "lending into a run," Bernanke felt. He continued: "The assessment was that if there was a run, which there would be . . . all we would have accomplished would be to make counterparties whole and not succeed in preventing the collapse of the company."
A disorderly failure of American International Group could hurt the already delicate financial markets and the economy. It could also lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance. - See more at: http://www.pinoymoneytalk.com/lehman-brothers-aig-bailout/#sthash.i3hBJKiS.dpuf
The plan was for the biggest banks to package a substantial bridge loan that would give AIG the time to sell assets and raise capital, an orderly resolution
AIG's financial crisis intensified Monday night when its credit rating was downgraded, forcing it to post $14.5 billion in collateral. The insurer has far more than that in assets that it could sell, but it could not get the cash quickly enough to satisfy the collateral demands. That explains the interest in obtaining a bridge loan to carry it through. AIG's board approved the rescue Tuesday night. AIG's board said in a statement that the deal would "protect all AIG policyholders, address rating...
Please join StudyMode to read the full document