Lehman Brothers Next Bank To Fail?
Apparently, Treasury secretary Henry Paulson opposes bailing out Lehman in a similar way that Fannie & Freddie were bailed out so the New York Fed is now trying to arrange a different way of re-capitalizing. And although Lehman can cover some of its liquidity problems by selling off assets, that won't do anything to improve solvency. Most likely this will be done in a manner more similar to the Bear Stearns bailout, with some other institution buying Lehman for a symbolic price with some form of backing by the Fed. It remains to be seen exactly who and under what conditions this will happen, and since I am not involved in these discussions I obviously can't give any specifics now. However, it should be noted that speculation is growing that some sovereign wealth fund will be involved. If that is the case, then that could be seen as returning the favor they received when the U.S. government bailed out Fannie & Freddie and thereby also the Fannie & Freddie bonds held by the sovereign wealth fund.