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Lehman Brothers Assignment

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Submitted By russeem
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Do you believe that the US government treated some financial institutions differently during the crisis? Was that appropriate?
The issue faced by Lehman Brothers is just a consequence of bad decisions from many parties involved. The fact that this investment bank had been the only one that didn't receive any governmental help, begs the question why the US government did not struggle to let Lehman Brothers survive. Many issues were out of control. Merrill Lynch, another major investment bank, was also facing a similar situation. After an emergency meeting called by the Federal Reserve (Fed); Bank of America announced its decision to buy Merrill Lynch.
The Investment banks Morgan Stanley, JP Morgan, and Golden Sachs were called by the Fed to find a way to rescue Lehman; however, no bank was interested in investing in the firm (Ferguson 2010). Just one week before Lehman’s bankruptcy, Fannie Mae, and Freddy Mac had to bail out with the intervention of the US Treasury and the Fed. Two days after its bankruptcy, the Fed provided $85 billion loan to American International Group (AIG) as an insurance conglomerate to prevent its failure (Elteman et al 2011, 132 – 134). Both, Fed and Treasury, argued that while Lehman could not post sufficient security in affording reasonable assurance that a loan from the Fed would be repaid, the Fed credit was adequately secured by AIG’s assets (USNews 2008).
Whether US government position was appropriate or not, depends on the interest of the parties involved. Hank Paulson, the US Treasury Secretary said, bailing out Lehman Brothers might still not be enough to halt the large crisis. Although it is true that the US government’s threat was not the same among the institutions affected by the crisis, it is also true that the firm was facing the effect of putting itself in too much risk for high profits. Merrill Lynch was also facing the

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