Tough Love

On one hand, way to go Paulson. The United States Treasury is not a backstop for stupid business decisions. While this of letting Lehman tank will be painful, it's the only way all the rest of the banks are going to get their affairs in order - which they are doing right now, very expediently, quietly, and after they change their pants. And yet, out of the other side of their mouth, the treasury is stepping up lending to financial institutions to calm the markets. There must be some bitter infighting about how to handle this thing. Who's driving this bus?!

This is what should have been done to Bear Stearns. What Bernanke and Paulson thought (evidently) was that B.S. was a lone problem, and if we bail out just this one, the rest will behave and get their act together. Uh, no.

Anyways, look for the market to tank, but hold this kernel of hope (and change?) in the back of your mind - that this will (probably) be the last one. If another major bank declares bankruptcy after Lehman, come back to Digital Irony for detailed instructions on how to panic. I read in the WJS article that it's only temporary. Heh. Sounds like Atlas Shrugged.

Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash

Fed Will Expand Its Lending Arsenal in a Bid to Calm Markets;
Moves Cap a Momentous Weekend for American Finance
By CARRICK MOLLENKAMP, SUSANNE CRAIG, SERENA NG and AARON LUCCHETTI
September 15, 2008 7:57 a.m.

NEW YORK -- The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. said it would file for bankruptcy protection, and Merrill Lynch & Co. agreed to be sold to Bank of America Corp.
It was a gut-wrenching weekend for Wall Street, with Lehman Brothers headed toward possible liquidation, Merrill Lynch about to be taken over and AIG facing shareholder wrath. WSJ's Dennis Berman and Matthew Karnitschnig look at what's ahead.

The U.S. government, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos. to J.P. Morgan Chase & Co. in March, played much tougher with Lehman. It refused to provide a financial backstop to potential buyers. Without such support, Barclays PLC and Bank of America, the two most interested buyers, walked away. Barclays said Monday it pulled out of the potential deal after deciding it wasn't in the best interest of shareholders.