Crisis panel chair: Politics may have doomed Lehman

By David Lawder and Dave Clarke

WASHINGTON (BestGrowthStock) – Officials appeared to have made a policy decision not to bail out Lehman Brothers, the head of a panel investigating the financial crisis said on Wednesday, challenging the view of regulators that they had no legal authority to help.

The comments lent support to former Lehman Chairman Richard Fuld’s contention that the Federal Reserve and Treasury could have done more to prevent his firm’s 2008 bankruptcy, which hastened the worst global recession since World War Two.

“It seems to me that over a period of months what ends up being made is a conscious policy decision not to rescue the entity,” said Phil Angelides, chairman of the Financial Crisis Inquiry Commission.

“It also looks like there are political considerations at play,” Angelides said, citing emails and letters.

The commission is holding a two-day session focused on what to do about firms deemed too big to fail.

It released 322 pages of documents and timelines detailing regulators’ discussions starting with the March 2008 near-collapse of Bear Stearns through the September 2008 Lehman Brothers bankruptcy. (

“I just can’t stomach us bailing out lehman,” Jim Wilkinson, who was then Treasury chief of staff, wrote in an internal email dated September 9, 2008, days before Lehman’s bankruptcy. “Will be horrible in the press don’t u think?”

In another email, Wilkinson wrote that the White House had ruled out any government money to back a Lehman rescue, adding there was “no way in hell (Treasury Secretary Henry) paulson could blink now.”

Fuld told the commission he did not know why the Fed declined to open its lending window to Lehman on the same basis as other firms. “What I was told was that the Fed said, yes we are expanding the window… but not for you Lehman Brothers.”

The financial crisis, which began with defaults on U.S. home mortgages, led to the collapse, bailout or government-brokered sale of major financial firms including Bear Stearns, Lehman Brothers, Washington Mutual, Citigroup and Wachovia in 2008.

The 10-member, congressionally-appointed commission will hear from Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair on Thursday, and is due to issue its report on the causes of the crisis by December 15.

Earlier on Wednesday, regulators told the panel new powers that came with the recently enacted financial reform law would help to avert another round of bailouts should crisis strike any of the remaining firms considered too big to fail.


Fed and Treasury officials held marathon weekend meetings almost two years ago to try to find a willing buyer for Lehman and avert a bankruptcy.

Thomas Baxter, general counsel for the New York Fed, said “Plan A” was to find a strong merger partner. The sticking point was that the Fed could not offer an unlimited guarantee. When it facilitated JPMorgan’s purchase of Bear Stearns earlier in 2008, it believed it had sufficient collateral to back the deal.

“Rest assured, commissioners, we worked night and day to make that happen,” Baxter said. “It wasn’t about politics. It was about getting to the right result.”

Baxter said the Fed had sent Lehman a letter the day before the firm’s bankruptcy filing, explaining how Lehman might be able to get assistance from the central bank.

Fuld, however, said his staff had told him the firm would not be eligible to tap a Fed emergency lending program known as the Primary Dealer Credit Facility.

Byron Georgiou, a crisis panel member and lawyer, lamented that a misunderstanding may have contributed to Lehman’s demise.

“I would hate for us to end this hearing thinking that because of a bunch of misunderstandings and mistakes that Lehman turned out to be the only investment bank that had to go down,” he said.

(Additional reporting by Kim Dixon; Writing by Emily Kaiser; Editing by Karey Wutkowksi and Tim Dobbyn)

Crisis panel chair: Politics may have doomed Lehman