Overview

“That’s a question that will haunt me till the day I die,” sighed the Lehman Brothers CEO when asked why Bear Stearns was saved and Lehman drowned. According to Henry Paulson, in his book “On the Brink,” which describes the desperate attempts to save Lehman over weekend prior to its Monday morning bankruptcy filing, the answer is that the Federal Reserve Bank only had the authority to save a commercial bank regulated by the US Bank Holding Act. It did not have the authority to save an investment bank, even if its demise threatened to drag down the whole economy with it, unless the investment bank had a buyer. Bear Stearns had a buyer. Lehman did not. The rest is history.

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