In a recent interview for the Dartmouth Alumni Magazine, Hank Paulson ‘68, the former Treasury Secretary, claims in reference to the Lehman Brothers collapse:
We tried very hard, but we didn’t have the authority to put capital into Lehman Brothers until we got TARP. Even if the Fed could have found a legal way to make a loan, it would have been foolhardy because it would have been lending into a run – Lehman Brothers had a big capital hole and a liquidity problem, and we didn’t have a buyer for them as we did with Bear Stearns…
[So there's nothing that could have been done?]
Yeah. We couldn’t find anything
That was for the weekend of September 13-14, 2008. The result? A complete freeze-up of the lending market and a massive tumble in U.S. and global stocks. Two days later on September 16, the U.S. government took over AIG with a $85 billion bailout.
Who Cares About Lehman?
Of course, there are many excuses to be made for allowing the Lehman collapse (free market!) and saving AIG (too big!), but how did the U.S. government suddenly acquire the authority to bailout an insurance company 2 days after it couldn’t save an important investment bank?
Arguably, the Lehman collapse was the spark that caused the fire. Once you save one company as insignificant as Bear Stearns, you can’t allow another as big as Lehman to collapse in the midst of a jittery economy.
Paulson and C0. are responsible for the horrible TARP program – not because it was put in place but because of the way it was implemented – and the initial Wall Street collapse. Paulson did try his best to prevent another Lehman, but it was too late already.
