WHY DID THE FED LET LEHMAN BROKERS DIE AFTER 158 YEARS?

In March, 2008, the Fed put up $29 billion to bail Bear Stearns out of bankruptcy. On Sunday 9/14/08 the government said no to similar help for buyers looking at Lehman. Here's why.

Experts say the Fed's lack of action on Lehman wasn't as much a change in thinking as it was a change in circumstance. In short, the firms were very different, Bear posed a greater risk, and that regulators were better prepared this time to deal with the consequences of a failure.

In the case of Bear Stearns, the Fed agreed on a bargain-basement sale of the firm by JPMorgan Chase (JPM, Fortune 500) by agreeing to assume $29 billion of the risk of losses from Bear Stearns going forward.However, when other banks considering a purchase of Lehman (LEH, Fortune 500) over the weekend sought the same kind of assurances from the Fed, they were turned down. Without a buyer, Lehman had little choice but Monday's bankruptcy filing that is expected to lead to its liquidation.Bear Stearns bankruptcy would have prompted a massive sell-off and hit the financial sector much harder than the Lehman bankruptcy did on Monday, September 15, 2008.

The Dow Jones industrial average fell more than 500 points Monday - a very rough day but not as bad as many feared.Per Barry Ritholtz, CEO of Fusion IQ, Bear Stearns' holdings also posed a greater risk to the nation's financial institution than did Lehman's. He said Bear Stearns had $9 trillion worth of financial instruments known as derivatives, much of it shared with other financial institutions such as its eventual buyer, JPMorgan Chase. He said Lehman had about a tenth that much exposure.“’Lehman was only incompetent enough to blow up and destroy themselves, where as Bear's degree of incompetence was enough to threaten the entire financial system. Ritholtz said.’”

I am including a link to the complete article from CNN Financial news in case you are curious.

http://money.cnn.com/2008/09/15/news/companies/why_bear_not_lehman/index.htm?postversion=2008091516


Now you understand more on what happened in the market on 9/15/08.

Source: By Chris Isidore, CNNMoney.com senior writer. September 15, 2008