Why did the government save Bear Stearns but let Lehman Brothers fail?
Wednesday’s hearing offers a long overdue opportunity to explain the government’s actions over the past year. Kotok said a crucial question is why the Federal Reserve stepped in to engineer a rescue of Bear Stearns, which was sold to JPMorgan Chase in March with $29 billion of federal aid — while letting Lehman Brothers fail in September. Both investment banks were so-called primary dealers, institutions that trade directly with the Fed. “The primary dealers have been viewed around the world as trustworthy and as a conduit of Fed policy,” said Kotok. “When Lehman failed, that called into question the sanctity of the primary dealers — and triggered the contagion that put 25% of the world’s wealth in the trash can.” Why wasn’t the government better prepared for the fallout of Lehman’s failure? Geithner, as president of the New York Fed, was responsible for overseeing primary dealers such as Lehman. Six months elapsed between Bear’s failure and Lehman’s Sept. 15 Chapter 11 bankruptcy fi
