US Fed chairman says Lehman bailout would have broken the law
US Fed chairman Ben Bernanke bluntly declared yesterday that it would have been unlawful for the US government to rescue Lehman Brothers, arguing that the Wall Street bank's finances were too weak to justify an emergency injection of public money before its 2008 bankruptcy.
In almost three hours of testimony to America's cross-party financial crisis inquiry commission, Bernanke flatly contradicted claims by Lehman's former boss, Dick Fuld, that the bank was a victim of an unjustified panic and a refusal by the government to step in.
The Fed chief expressed regret for failing to be more "straightforward" about Lehman's fate in the past, saying his past equivocation may have "supported the mistaken impression that in fact we could have done something".
He said: "The only way we could have saved Lehman would have been by breaking the law and I'm not sure I'm willing to accept those consequences for the Federal Reserve and for our system of laws.
"I just don't think that would have been appropriate. So I wish we had saved Lehman but it was beyond our ingenuity and capacity to do it."
The implosion of Lehman Brothers in September 2008 remains one of the most fiercely debated episodes of the financial crisis.
Lehman's bankruptcy reverberated through global markets as its complex positions were unwound and investors worried over which financial institutions could be next to fall.
Within days, the insurer AIG and savings bank Washington Mutual were in trouble and the US government scrambled to put together a $700bn banking bailout package.
Mr Bernanke said AIG's insurance business was valuable enough to secure loans to bail-out its troubled financial products division. (Bloomberg)