Just moments ago Federal Reserve Chairman Ben Bernanke gave a speech in which he said the following about Lehman Brother: “there was not enough collateral to support the lending.” This was Bernanke’s response to a question about whether the Fed erred in letting Lehman fail the way it did. I am on record for saying that it did.
However, Bernanke did a good job of explaining why it did. He indicated that no mechanism like the Troubled Asset Relief Program (TARP) was available to rescue Lehman at the time. He also indicated that the Fed was unable to lend to Lehman in exchange for collateral from Lehman as it did for Bear Stearns in March because “there was not enough collateral to support the lending.”
Obviously, there were some very serious holes in Lehman’s balance sheet if the Fed Chairman makes such a statement. I can’t wait to find out what things looked like at the company.