Major Financial Institutions in the Crisis: What Happened and Governments Responses By Lindsay C.

McAfee & Nichole Johnson March 2010 As the global credit crisis played out, it became clear that its impact would reach most everyone in the global economyfrom governments and major financial institutions, to manufacturers, retailers, and consumers. But it was a group of financial institutions in the United States and the United Kingdom that, as major players in world financial markets, bore the brunt of the crisiss immediate consequences. This E-Book section will discuss what happened to Bear Stearns, Lehman Brothers, Northern Rock, Fannie Mae and Freddie Mac, and AIG. Part A will examine the interconnectedness of the U.S. mortgage market and various financial institutions, linking the collapse of the subprime mortgage market to institutional failures. Part B will examine how individual financial institutions were vulnerable to collapse. Part C will then look at why governments did or did not act to save these institutions. The companies discussed in this section are high-profile financial institutions and are representative of several key parts of the financial system. They include investment banks, a commercial bank, mortgage guarantors, and an insurance company. By looking at what happened to these institutions, readers can achieve a better understanding of the global financial crisis. A. Financial Institutions' Troubles Began with the Collapse of the U.S. Supbrime Mortgage Market Most financial institutions problems began with the subprime mortgage crisis in 2007. Therefore, in order to understand how and why the failure of one financial institution led to the failure of another, it is necessary to understand the interconnected flow of the U.S. mortgage market. The U.S. mortgage market operates in a way that enables its players to pass the risk of

participating on to other players. Some of these players are commercial banks, where customers deposit their money into checking or savings accounts. Commercial banks are also lending institutionsthey provide mortgages and other types of loans to their customers, and in some cases pass these mortgages on to other institutions to be bundled into securities, as described below. Investment banks can also provide customers with mortgages through mortgage brokers owned by the investment bank, which are instrumental in creating and selling mortgage-backed securities (MBSs). Other institutions are also involved in the mortgage market, including the government-sponsored entities (GSEs) known as Freddie Mae and Freddie Mac, which purchase mortgage debt and guaranteed mortgage loans, and insurance companies like AIG, which provide protection for those investing in risky mortgage-related financial products. To operate in the United States and in many countries around the world, commercial banks are required to keep a certain amount of capital on hand. This means that they cannot lend all the money they have in any given daycommercial banks must set aside a certain amount to protect against the risk of many consumers withdrawing money at once, losses on investments, and defaults on debts owed to the bank. The more money a bank loans out, the more capital it is required to keep on hand. Thus, in order to have the capacity to make more loans, commercial banks need to get mortgage debt off their booksso they often sell that debt to large investment banks and the GSEs to be pooled together and sold to investors around the world through a process called securitization. Prior to the financial crisis, unlike commercial banks, the large Wall Street investment banks did not provide checking and savings accounts. They borrowed money for their day-today operations and sold investment products, such as MBSs, to their customers. MBSs are packages of mortgage loans that are sold to investors, who receive a return on their investment

when individuals make their monthly mortgage payments. Before the global financial crisis, it was very profitable for an investment bank to purchase a portfolio of mortgage loans from a commercial bank, thus relieving the commercial bank of the debt on its balance sheet. The investment bank would then sell an MBS comprised of that debt to investors around the world. As long as mortgage payments came in, the investors would profit, as would the investment bank. Even if some defaults occurred, housing prices were going up, and the investment bank could count on the value of the home as collateral. The fall of housing prices and rising defaults on subprime mortgages in 2007, however, meant that many individuals holding these mortgages did not make payments, and that the collateral that the banks held on those risky loans was not worth as much as it was during the height of the housing bubble. In some cases, the amount of mortgage debt was even greater than the value of the home itself, which encouraged homeowners to default on their mortgages. This caused MBSs to become toxic assets, which ultimately led to a credit freeze in the United States and Europe. The financial storm hit full force in 2008, when the global financial system saw a staggering domino effect of collapsing investment banks, beginning with Bear Stearns in March and followed by a laundry list of institutions in September and October. The investment banks collapse devastated the rest of the global financial system, including the international insurance giant AIG. Governments responding to the financial crisis initially concluded that these financial institutions were too big to fail. Many government officials believed that, because of the interconnectedness of each firm with the rest of the American and global economy, the failure of the financial institutions could cause the entire global financial system to collapse. This was

especially true of the large investment banks that, having securitized so many subprime mortgages, were major players in the global markets and their failure would undercut the stability of the entire system. The variety of government reactions to each institutional failure indicates that Federal Reserve and government officials around the world realized there was a problem, but were skeptical that merely allowing the market to work itself out was an appropriate solution. Overconfidence and unrealistic expectations led most of the institutions to collapse. The U.S. government was willing to let some institutions fail (Lehman) while it bailed others out (Bear, AIG, and Fannie Mae & Freddie Mac). Whether or not the U.S. Federal Reserves responses were the best solutions will be the focus of debate for years to come; what is certain is that the global credit market, and the role of investment banks in it, has undergone fundamental changes. B. Financial Institutions Were Vulnerable to Collapse for Different Reasons, Though Common Threads Tied Each Institution to the U.S. Mortgage Market Though the failures of these institutions were interconnected through the credit markets and especially through connections to the U.S. mortgage market, different factors made each institution vulnerable. This part explores underlying factors that threatened the stability of Bear Stearns, Lehman Brothers, Northern Rock, the two GSEs, and AIG. These factors include overexposure to the U.S. mortgage market, risky financial products, and inadequate internal oversight and external regulation. 1. Bear Stearns' Overexposure to Mortgages and Dishonesty About Its Exposure Made the Investment Bank Vulnerable

Bear Stearns (Bear) was the first of the nations largest investment banks to suffer from the subprime mortgage crisis in 2007. Until March 2007, Bear had never had a losing quarter in its eighty-four-year history. Most of Bears profits came from trading operations. The firms

more recent success was particularly grounded in mortgage-backed securities and their sale to other firms, which included institutional investors, investment banks, and commercial banks. As housing prices fell, the firms complex financing arrangements, which were crucial to its survival and based on the value of its mortgage-backed security holdings, began to crumble. Moreover, lenders that had traditionally traded with Bear grew wary of accepting mortgage-related collateral for loans. Bears financing agreements began to fail. Financial institutions that dealt with Bear lost faith that the firm could repay its debts (even the short-term, overnight ones). The June 2007 collapse of two internal hedge funds that were heavily invested in subprime mortgages marked the beginning of the end for Bear Stearns. One hedge fund, the High-Grade Structured Credit Fund, contained $1.5 billion from outside investors at its peak. The fund had invested that money in low-risk, high-grade debt securitiessuch as the upper tranches of collateralized debt obligations (CDOs) that the credit ratings agencies had rated highly, either AAA or AA. The second hedge fund, the Enhanced Fund, was set up later and used substantially more leverage (and more risk). The Enhanced Fund had over $600 million in capital at its peak and used a $400 million credit facility from Barclays, a British bank. Both of these funds performed very well until February 2007, when the funds both experienced net losses for the month. Instead of informing investors about the losses and being honest about the funds exposure, a letter to investors indicated that only 6 percent of the funds investments were tied to the subprime mortgage market, when those who ran the fund knew the exposure was really more like 60 percent. When the funds posted even larger losses in March 2007, one of the executives who ran the funds withdrew his own $2 million investment from the funds without disclosing the withdrawal to investors, who were getting skittish about the funds performances. After several investors requested to withdraw their money from the funds, Bear leaders scrambled for a

solution. CEO Jimmy Cayne announced the end of the funds on July 17, 2007 and market panic ensued. To keep Bear from failing further and to assuage investors panic, Bear formed a partnership with Chinas Citic Securities in fall 2007, whereby the two firms swapped shares. Meanwhile, CEO Jimmy Cayne stepped down in January 2008 when he fell under scrutiny for his callous attitude about the firms stability. In December 2007, Bear announced a loss of $854 million (down from a $563 million profit a year earlier) and said that it had written down $1.9 billion of its holdings in mortgages and mortgage-backed securities. Bear turned to Alan Schwartz, one of its most prominent investment bankers, to lead the firm. This was the first time an investment banker had ever led the predominantly fixed-income-focused firm. Schwartz's decision to allow Bear to go it alonenot to raise additional capital or to seek a merger partner led Bears counterparties to question its viability. Speculators began shorting Bear, betting that its stock would fall in value (explained below). Bears stock did indeed plunge in value. Within days, Bear experienced an acute liquidity crisis, which ultimately led to its downfall. 2. Lehman Brothers' Extensive Use of Leverage and Significant MortgageRelated Security Holdings Led to Problems with Short Sellers and a Crisis of Investor Confidence

The problems of Lehman Brothers, one of Wall Streets oldest investment firms, also began with the subprime mortgage crisis in Summer 2007. Lehman Brothers, founded in 1850 by two Alabama cotton farmers, was the smallest investment bank on Wall Street. Despite its smaller size relative to some of its competitors, it was a major player in the global financial system and conducted billions of dollars in transactions with banks and hedge funds. Because Lehman used large amounts of leverage to increase its investment profits many feared that major losses could be fatal to the bank. Through the end of 2007 and the beginning of 2008, Lehman

was able to keep its head above water and maintain its operations. However, by the summer of 2008, when the firm reported large write-offs and ran a series of new offerings to bolster its capital, Lehmans problems had become too significant for the market to bear. Critics have claimed that Lehman executives painted a rosy picture of the firms situation when in fact the reality was quite grim. But some experts and Lehman executives blamed Lehmans quick decline on short sales. In a short sale, a trader, betting that the price of a stock will decline, makes a profit by borrowing the stock from a brokerage firm. She can do this by immediately selling the borrowed shares, and then buying them back at a lower price. The traders profit is the difference between the price at which she sold the borrowed security and the price at which he was able to buy it back to return it to the broker. Thus, if a trader sold a borrowed Lehman share at $50 per share and was able to buy it back days later at $35 per share, her profit was $15. Lehman accused short sellers of spreading rumors to drive down share prices, but investors volleyed back accusations that the firm had not been honest about the size of its losses. In June 2008, Lehman announced a loss larger than anyone expected. Despite numerous attempts, Lehman was unable to raise new capital as its leaders had promised, and its outlook turned bleak. At the same time that Lehman was facing a drastic reduction in investor confidence, the U.S. government announced that it would bail out the GSEs Fannie Mae and Freddie Mac. If the U.S. government was bailing out the major mortgage firms, would there be anything left to help Lehman? The short answer is no. Lehmans efforts to spin off its commercial real-estate holdings division and sell its wealth management division to raise capital were not enough to save the ailing firm. Concerned about the moral hazard of bailing out Lehmanthat doing so would only encourage financial firms to engage in increased reckless behavior because they know they

would be rescued by the governmentthe Federal Reserve made it clear that Lehman would not receive any federal money and instead encouraged other institutions to buy Lehman. On September 15, 2008, Lehman Brothers filed for bankruptcy, sending 25,000 employees to the streets and throwing world markets into turmoil. The same weekend, Merrill Lynch, the United States largest brokerage firm, announced that Bank of Americawhich previously had been involved in talks to buy Lehmanwould purchase Merrill Lynch. Lehmans failure sent ripples throughout the world financial system and underscored the necessity of a cohesive global response to the credit crisis. Its extensive involvement in transactions with banks and hedge funds set off a crisis of confidence, and global credit markets froze. 3. Northern Rock's Unique Business Model Made It Particularly Vulnerable, While a Flawed British Regulatory Scheme Caught Problems Too Slowly

The financial crisis also hit Northern Rock hard, even though it is not an investment firm like Bearn Stearns and Lehman Brothers. Northern Rock is a commercial bank operating in the United Kingdom and is Britains fifth-largest mortgage lender. Its financial problems were caused primarily by an overly risky business plan and a flawed banking regulatory system. Northern Rocks business plan differed greatly from the traditional banking model. Most commercial banks fund their business operations and lending with customer deposits. Northern Rock, however, raised money primarily by participating in the wholesale market and by securitizing mortgages. Money in the wholesale market comes from financial institutions, governments, and other entities, instead of from the customer deposits that serve as the main source of funding for most commercial banks. These entities loaned money to Northern Rock and other financial institutions for short periods of time and they had the option of either letting Northern Rock keep the money longer (roll over the loan) or withdrawing their money if they were not happy with Northern Rock's financial position. To securitize mortgages, Northern

Rock packaged multiple mortgage loans into bonds that were sold to investors. By doing so, Northern Rock was able to raise money quicker and more cheaply than its rivals, allowing the bank to grow continuously for more than a decade. Unfortunately, Northern Rocks business plan also exposed it to more risk because it was giving out loans faster than it could raise the money to back them. Any disruption in the mortgage securities markets would seriously damage the bank. Additionally, the banks stability was heavily reliant on the confidence of debt traders the people willing to buy and sell the securitized mortgagesand a loss of confidence would cause the banks destabilization. Northern Rock and other banks in Britain, like banks in most countries, are subject to special governmental supervision. The supervision is necessary because one troubled bank could diminish customer confidence in the entire banking system. The Bank of England (BoE) had traditionally been in charge of both setting monetary policy in Britain and regulating the financial services provided by British banks. This changed in 1997, however, when Britain delegated bank supervision to the newly created Financial Services Authority (FSA), leaving the BoE responsible solely for setting monetary policy. Britain deemed such a separation necessary because managing both monetary policy and bank regulation can lead to conflicts of interest. For example, raising interest rates may be necessary to decrease inflation and to set a sound monetary policy, but it might also adversely affect the banking systems solvencynot something bank regulators would likely be willing to do. The British Treasury is also an essential part of the financial system and makes decisions where taxpayer money is involved. Therefore, the British regulatory system evolved into a tripartite authority with three separate but cooperative decision-makers: the Treasury, the BoE, and the FSA. The British government intended the establishment of a tripartite authority to lead

to clear accountability, provide transparency, reduce the inefficiencies created by multiple regulatory bodies, and establish a regular flow of information in the British regulatory system. However, the BoE and FSA did not communicate effectively with each other or the Treasury about the problems that each individual supervisory branch noticed. For example, Sir John Gieve, the BoEs deputy governor in charge of financial stability, testified in front of a British parliamentary committee that he was concerned in a general way about the growth of wholesale lending, but that he was not aware of Northern Rocks current financial position. The FSA should have known those details, but, apparently, did not share them with the other two branches of Britains regulatory system. The BoE was also slow to act at the outset of the financial crisis. Both the Federal Reserve in the United States and the European Central Bank injected extra cash into the money markets and accepted a wider range of collateral than usual at the outset of the financial crisis in order to restore liquidity to their financial systems. The BoE, however, waited until September to increase liquidity in the U.K. financial system because it was concerned about moral hazardit did not want to be perceived as rewarding banks for bad behavior by bailing them out. To add to the problem, the FSA failed to step in when faced with ominous financial signs, including Northern Rocks falling share price and a profit warning. In fact, in June 2007, the FSA approved Northern Rocks request to decrease the required amount of on-hand capital. The combination of Northern Rock's risky business model and the flaws in the UK regulatory scheme made the effect of the subprime mortgage crisis on Northern Rock especially damaging. Northern Rocks capital-raising methods made it impossible to secure funding when the credit crisis dried up the financial systems liquidity and no other institutions were willing to lend to the bank. With its next bond sale scheduled for September, the liquidity freeze on August

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9, 2008 caught Northern Rock unprepared and low on cash. Although Northern Rock tried to diversify its funding sources, markets dried up and it managed to secure only 1.5 billion pounds in emergency money from fellow British banks, an amount which was not nearly enough to solve its financial problems. 4. The Overwhelmed Market Made It Impossible for the GSEs to Guarantee a Sufficient Number of Loans without Shareholder Support

Private financial institutions were not the only major players in the financial crisis: GSEs Fannie Mae and Freddie Mac were the cornerstones of the U.S. mortgage market, backing over half of the home loans in the United States. Although the GSEs were privately owned and operated by shareholders, the U.S. government also gave them financial protection, including direct access to a line of credit, exemption from state and local taxes, and no oversight from the Securities and Exchange Commission. Several simultaneously occurring factors caused the GSEs to falter: falling home values, questionable management and accounting practices including incorrect statement of profits and inadequate capital reserves. The U.S. government created Fannie Mae in 1938 as a government agency that would ensure the supply of mortgage funds by buying up banks loans in exchange for cash that banks could use to issue new mortgages. In 1968, the government re-chartered Fannie Mae as a public company funded solely by private investors who bought shares in the GSE. Two years later, Congress created Freddie Mac to end Fannie Maes monopoly in the secondary mortgage market. Fannie Mae and Freddie Mac both buy mortgages from originators and provide guarantees on the mortgage principal and interest. Though they are both private firms, Fannie Mae and Freddie Mac based their business models the U.S. governments implicit guarantee of their operations (meaning that the government would not allow them to fail), and consequently they were able to keep less cash on hand than commercial or investment banks and were able to

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borrow more in the markets. Fannie Mae and Freddie Mac are not mortgage lenders themselves, but instead buy mortgages from private banks. They made money because they had strict requirements for loans that qualified for their guarantees, and those loans traditionally performed well. However, in the late 1990s, there was concern among lobbying groups and members of Congress that Fannie Mae and Freddie Macs policies were benefitting higher-income people who were traditionally better candidates for home loans. Consequently, the GSEs changed their policies to benefit mid- and low-level home loan candidates. Private banks could rely on Fannie Mae and Freddie Mac for a constant stream of capital (because they always bought the loans) and Fannie Mae and Freddie Mac could obtain more capital from their shareholders to buy more loans. They could also sell mortgages in tertiary markets by packaging many mortgages together and creating marketable securities (mortgage-backed securities (MBS)) through the securitization process. When individuals whose mortgages were part of an MBS failed to make their payments, Fannie and Freddie, as guarantors, were still required to make payments to the investors who bought the MBS. Fannie and Freddie sold many of their MBSs in foreign markets, especially in Asia, which is another major reason why the U.S. government could not allow the GSEs to fail. Their failure would have meant the implosion of Asian markets, and disaster for others around the world who had invested in U.S. MBSs. In 2004, an accounting scandal prompted regulators to require Fannie and Freddie to raise their core capital levels. This new requirement capped the companies abilities to purchase mortgages from lenders because it meant that the firm had to keep more cash on hand, leaving less cash to buy mortgages from private banks. In early 2008, when the credit crunch was in full swing and other lenders reduced their lending activity, Fannie and Freddies regulator (the Office

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of Federal Housing Enterprise Oversight) reduced core capital requirements, freeing up $200 billion for the GSEs to guarantee more mortgages. By April 2008, mortgages guaranteed by Fannie Mae and Freddie Mac accounted for more than 75 percent of the new mortgages in the United States. Being such a major part of the market meant that Fannie and Freddie needed more cash reserves to insure the mortgages that went into default and to support new loans. However, the credit crunch had reduced their ability to fund themselves in the markets. Investors simply did not have the cash to invest in Fannie and Freddies loan products or to buy more shares in the GSEs. After reporting a second-quarter loss in August 2008, Fannie and Freddie announced that they would have to dilute shareholder earnings to raise new capital, which caused concern among investors. Investors feared that a government bailout would be necessary to save the two firms from complete collapse, and the value of their shares plummeted as many shareholders sold quickly in anticipation of this outcome. As the world watched, federal regulators had to decide how to save the mortgage industry from collapsing the entire financial industry. The U.S. government ultimately took over Fannie Mae and Freddie Mac, placing the GSEs into a conservatorship whereby the government will administer the two entities until they regain financial health.

5.

Lack of Internal Oversight at AIG and Lack of Comprehensive Regulation of the Insurance Industry Made the Insurance Giant Vulnerable to Collapse

American International Group (AIG) also found itself in the unenviable position of needing a major government bailout. AIG is a prominent international insurance company based in the United States. AIG was generally considered to be the best and strongest insurance firm in the world, providing insurance and financial services in more than 130 countries. Indeed, the

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majority of its divisions and the services it offers remain solid in spite of its need for a bailout from the Fed. AIGs troubles stemmed primarily from a lack of oversight of internal divisions by the parent company and insufficient government regulation of the insurance industry. Its problems began with a small company unit based in London called AIG Financial Products (AIGFP). AIG allowed the units executives to operate the unit with nearly complete autonomy from the parent company. It was a small unit, with just 377 employees, and when it first opened it sold only lowrisk, run-of-the-mill financial products. In the late 1990s, however, the unit began selling insurance packages on collateralized debt obligations (CDOs), explained in another E-Book section. CDOs were popular with investors, as those holding the lower tranches could receive sizeable returns as long as people continued to make payments on their mortgages. However, because of the risk involved in these investments, AIG could also sell insurance to those investors. The insurance reassured investors that, if defaults occurred in the underlying mortgage pool, AIG would cover the investors losses to the extent required by the insurance contract. The finance industry developed this type of insurance, called a credit default swap (CDS), as recently as the late 1990s, and therefore the risks were unclear. AIGFP reportedly described the CDSs as almost a sure thing and built up a nearly $500-billion portfolio of swaps. By the end of September 2007, however, the credit crisis had hit AIGFP hard. Because AIG set up AIGFP as a bank instead of as an insurer, and because of the particular way in which it arranged its contracts, the London-based unit had to provide its trading partners with collateral when the value of the mortgage loans packaged in the insured CDOs declined. Furthermore, since AIGFP did not have enough money to fulfill the CDS contracts as the value of the insured CDOs decreased, its corporate parent, AIG, had to cover the losses. Thus, even though AIG is

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the largest insurer in the world and the majority of its divisions were stable, the small AIGFP unit destabilized the entire company as subprime mortgage defaults mounted and the company was facing crippling CDS liability. In addition to the specific problems at AIGFP described above, the insurance industry lacks a comprehensive regulatory system to prevent the types of dangerous practices in which AIG was engaged. In the United States, where AIG is based, the state in which the insurance company is incorporated regulates the it. Regulations vary by state and there is no national or international regulatory body or system. AIG is incorporated in Delaware, whose laws are especially generous to corporations in order to entice the companies to incorporate within the state (which increases Delawares tax revenues). It is possible that a comprehensive regulatory system would have limited AIG's losses by curbing the extent of AIGFP's risky activities. C. Governments Acted in Some Cases to Prevent Systematic Collapse, but Let Institutions Fail in Others Due to Moral Hazard As each major financial institution stumbled to the brink of failure, it was apparent that the worlds governments did not have formal plans to handle each institution's impending doom. Initially, the U.S. government justified bailing out particular institutions by falling back on the too big or too interconnected to fail argument and gave failing firms a cash infusion to maintain them as viable players in the market. Deeper into the crisis, however, Treasury officials asserted that allowing particular large firms to fail was necessary to reduce moral hazard. The United Kingdoms initial reaction to the financial crisis was to refuse to intervene at all, but as Northern Rock's problems mounted, it eventually provided support. 1. The U.S. Government Bailed Out Bear Stearns to Prevent Total Financial Collapse, But Allowed Lehman Brothers to Fail, Citing Moral Hazard

In March 2008, after a roller coaster week in the markets for Bear Stearns, the Federal

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Reserve opened a $30 billion line of credit to allow JPMorgan Chase to take over Bear Stearns. JPMorgan originally bought Bear Stearns for just over $2 per share, which was less than onetenth of the firms market value just two days before. A few days later, after shareholders complained and pressure mounted from other institutions, JPMorgan agreed to bid up to $10 per share and bought 95 million new shares of stock in Bear Stearns, giving it a 39 percent stake in the brokerage firm. Shareholders approved the merger in a ten-minute meeting on May 29 and the deal closed on May 30, 2008. JPMorgan immediately began rebranding the newly acquired company by phasing out the Bear Stearns name. JPMorgan kept only 6,500 of the nearly 14,000 Bear employees. As the first major investment firm to face a life-or-death situation, Bear Stearns was also the first major firm to receive the attention of the Federal Reserve and the Treasury Department. The theory behind JPMorgans Federal Reserve-facilitated takeover of Bear Stearns was that the credit market would have frozen in the wake of a major firms failure, resulting in a drastic drop in investor confidence. That the Federal Reserve bailed out Bear Stearns and not Lehman Brothers a few months later became the focus of a great debate as the economic crisis played out. The Fed argued that Bear and Lehman were two very different firms with different effects on the market, while some commentators argued that the Feds response to Bear Stearnss near-failure was part of a patchwork, unorganized Fed response to the credit crisis. When Lehmans failure became imminent, all eyes were on the Fed in anticipation of a bailout similar to that of Bear Stearns. After Lehman Brothers announced its largest loss ever of $2.8 billion in June 2008, the company attempted to raise $6 billion in the markets, which proved unsuccessful. When it became clear that it would face insolvency in a matter of weeks, Lehmans CEO, Richard Fuld Jr., began to search for possible buyers, including foreign investment firms

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and foreign central banks. In the week before Lehmans collapse, JPMorgan Chase, which handled Lehmans trades, demanded increased collateral, claiming that the collateral Lehman put up had deteriorated in value. On Sept. 8, 2008, the federal government announced that it would take over Fannie Mae & Freddie Mac, which led to speculation that the government would not bail out Lehman, and the value of Lehman shares plummeted. That same week, Lehman announced more losses, Standard & Poors warned that it was considering downgrading Lehmans single A credit rating, and several talks took place with potential buyers, including the Korean Development Bank, Bank of America, and Barclays. In its search for a buyer, Lehman suffered from its opaque accounting practices relating to its subprime holdings and exposure. Every potential investor and the market as a whole questioned Lehmans accounting practices because many thought that Lehman had valued its subprime assets far too optimistically. Lehman could not convince potential buyers to take on the significant risk that Lehmans assets would face much larger writedowns without a government guarantee, which the Treasury insisted would not be forthcoming. During the weekend of Sept. 12, 2008, several Wall Street executives met to discuss how to stop the hemorrhaging of Wall Street firms, as it became clear that AIG was also at risk. However, the executives could not agree to cooperate on a private bailout without U.S. government assistance. By the end of the weekend, Lehmans fate was sealed when the Korean Development Bank and Barclays walked away from the bargaining table, and Bank of America opted to buy Merrill Lynch instead of Lehman. The Fed deemed Lehman too troubled to be eligible for the rescue and safety-net programs it had implemented for other firms. The government did not rescue Lehman, as it had Bear, because a takeover of the GSEs was the larger concern at the time. While allowing Lehman to fail meant that shareholders and employees of the firm would be left in the cold, the Fed

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believed that its hands were tied. There was also the concern of moral hazardthat if the Fed assisted in too many bailouts, all financial institutions would expect a government bailout in the future, and thus would not act prudently. The Fed believed that it needed to let Lehman fail in order to discourage institutions from acting with undue risk in the future with the expectation of government support in the event of failure. On Sept. 15, 2008, Lehman Brothers filed for bankruptcy. One day later, Barclays agreed to purchase Lehmans United States capital markets division for a bargain price. The rest of Lehman Brothers was sold piecemeal to various competing firms: Japans Nomura Holdings purchased large portions of Lehmans entities in Europe and Asia, and Bain Capital and Hellman & Friedman took over the valuable Neuberger Berman asset management unit. Did Lehman have to fail? Some have argued that allowing Lehman to fail signaled confidence in the financial marketsif those familiar with Lehman's situation knew that Lehman would fail without their support and nonetheless did not provide it, it must mean that Lehman's failure would not result in a total collapse of the financial system. Lehmans failure would only destroy itselfits products, reputation, etc.whereas allowing other firms like Bear Stearns or AIG to fail would have threatened the entire financial system because of their interconnections with the rest of Wall Street and the global financial system. Commentators have also underscored the importance of the Federal Reserves lesson in moral hazard to other Wall Street firms. By refusing to be Lehmans knight in shining armor, the Federal Reserve allowed the free market to do its joband in leaving Lehman to fail, the Federal Reserve helped to prevent another similar market failure from occurring. Theoretically, other institutions will now act prudently, knowing that their risky actions might not be supported by a government bailout if they were to fail. Initially, many critics noted that Lehman was actually in better shape and more

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worthy of a bailout than Bear was, but other commentators pointed out that investors connected to Lehman had more time to soften the blow from its bankruptcy. Many questions remain about the wisdom of allowing Lehman to fail at such a critical juncture in the history of the global financial system. Many analysts have suggested that Lehmans failure only increased the crisis of confidence on Wall Street and deepened the downward spiral of the financial system by increasing Lehmans counterparties losses at a time when all major Western banks faced liquidity problems. This crisis in effect led to the disappearance of the five largest independent American investment banksBear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs. As described above, Lehman Brothers was allowed to fail, declared bankruptcy, and was then purchased in pieces by various institutions. Bear Stearns and Merrill Lynch were purchased by JPMorgan and Bank of America, respectively. Morgan Stanley and Goldman Sachs announced on September 22, 2008, that they would become traditional bank holding companies as opposed to investment banks. The disappearance of these investment banks was due largely to the fact that each bank was incredibly leveraged. This meant that large amounts of their assets (or worth) were tied up in debt, and thus the institutions were not viable when the credit markets froze. The SEC regulated investment banks' leverage through its Consolidated Supervised Entities (CSE) program. But the major flaw in the program was that it was voluntarybanks could opt in and out at their own discretion with no mandatory oversight or accountability. Without any enforcement mechanism, the CSE program stood by while investment banks ran up their leverage. When it was time for the banks to pay back their debt, they had no money coming in and could no longer borrow it in the frozen credit markets. The banks had more debt than

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assets, and were faced with asking for a government bailoutor failing. On Sept. 26, 2008, SEC Chairman Cox announced the end of the CSE program, due in large part to its failure to prevent Bear Stearns liquidity problems. 2. After Being Unable to Find a Bank to Purchase Northern Rock Without a Government Loan, British Authorities Provided Emergency Funding, Guaranteed All Northern Rock Deposits, and Eventually Nationalized the Bank

Across the Atlantic, the British government grappled with how to handle its own financial institutions. When the mortgage crisis hit in 2007, the lenders in the wholesale market stopped rolling over their loans to Northern Rock and pulled their money out of the bank. They also stopped making new loans to Northern Rock. This caused a liquidity freeze in August 2008 that prevented the bank from issuing new loans and deprived it of the funding it needed to continue operating. Northern Rock was forced to ask the BoE for help on August 13, 2008. The FSA, the BoE and the Treasury worked together to deal with Northern Rocks financial problems, and the BoE recognized that it would possibly have to act as a lender of last resort to the beleaguered bank. First, however, the regulatory bodies attempted to find a stronger bank to buy Northern Rock in lieu of nationalizing it. Lloyds TSB, another British bank, offered to buy Northern Rock if the BoE would lend it 30 billion to complete the deal. The BoE, however, refused because the three regulatory authorities agreed that it would be inappropriate to subsidize one banks takeover of another bank. Without the loan, the deal fell through and British regulators were unable to broker a Northern Rock sale. On September 13, 2007, the BoE finally decided to provide emergency funding to Northern Rock. While regulators were working to deal with Northern Rocks financial problems, depositors started withdrawing their money from the bank. Britains deposit insurance system fully guaranteed only the first 2,000 of deposits and only 90 percent of the next 33,000,

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leading Northern Rocks depositors to rush to get their money out before a collapse for fear of losing their savings. This led to the first run on a British bank in 140 years, which did not stop until the Chancellor of the Exchequer guaranteed, for the first time ever, all existing deposits at Northern Rock. Taxpayer loans to Northern Rock currently total 27 billion, with another 8 billion planned after the split detailed below. However, Northern Rock has, as of October 2009, already repaid 12.5 billion of these loans. Because the British government was unable to secure a private takeover of the bank by a third party, it was ultimately forced to nationalize Northern Rock. The takeover was designed to repay all of the taxpayers outstanding loans to Northern Rock with interest. The government ultimately decided to intervene because it feared that the banks collapse would have worsened the problems that had already spread through the British banking system. In October 2009, the European Union announced its approval of a planned split and partial sale of the bank following an EU investigation into the nationalized bank in 2008. Northern Rock officially split into Northern Rock, plc, which will be sold to private investors, and Northern Rock Asset Management, which retains all of the banks toxic assets and remains in public ownership, as of January 4, 2010. 3. The U.S. Government Took the GSEs into Conservatorship to Restore Them to Financial Health and Avoid Collapse of the Mortgage System

Back in the United States, the nations most famous mortgage intermediaries were in danger. While the Federal Reserves reactions to failing private institutions varied, the Federal Reserve had made the decision that Fannie Mae and Freddie Mac were too big (and too interconnected) to fail. Because of Fannie Mae and Freddie Macs dominance in the mortgage industry, allowing them to fail would have effectively halted new home ownership and collapsed the entire mortgage-lending industry. With no financing for home buyers, anyone wanting to buy

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a home would have to pay cash, and those wanting to sell a home would have to limit their sale price to the amount of hard cash a buyer could procure. Fannie Mae and Freddie Macs government takeover meant that the government was the new guarantor of most of the mortgage market, effectively putting taxpayer money behind subprime mortgages. The Federal Reserve put Fannie Mae and Freddie Mac into a Federal Housing Finance Agency-run conservatorship, which means that the government will run the two firms until they are on stronger footing. Both CEOs stepped down shortly after the takeover was announced and the firms replaced them with veteran administrators whose job is to restore the mortgage intermediaries to health. Fannie and Freddie halted dividend distributions and lobbying activities, and the administrators conducted a review of the entities' charitable activities. The Treasury purchased some MBSs and lent money to Fannie, Freddie, and the twelve Federal Home Loan Banks that were responsible for distributing Fannie and Freddies money to private banks. The Treasury also bought preferred stock in Fannie and Freddie to secure investors holdings and provide more stability in the market. In return, the government received $1 billion in preferred stock in each company, a quarterly dividend payment, and the right to own 79.9 percent of each company. By ensuring that money would be available for the companies operations and market functions, the federal government kept the financial industry from further collapse. 4. The U.S. Government Offered AIG Massive Assistance to Prevent the Worldwide Effects of the International Giant's Failure

The Fed also stepped in to prevent AIGs collapse. AIGs losses from the CDSs were incredibly largemuch larger than AIG had ever anticipatedand the company did not have the capital to pay off all of the customers who had entered into CDS agreements. AIG tried to secure a bank loan to make those payments and avoid bankruptcy, but failed because of the extent of its exposure and serious questions about its future solvency. By the second week of

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September 2008, AIG had no choice but to disclose its financial problems to the Fed and ask for a $40 billion bridge loan to prevent investment losses from causing a downgrade in its credit ratings. A downgrade in credit ratings would have scared investors further, making it even harder for AIG to get funding, and would also have required it to post additional collateral (that it did not have) because of clauses in its CDS contracts. As a result, the company would almost certainly have been forced into bankruptcy. Initially, the Fed and the U.S. Treasury refused to bail AIG out and instead attempted to broker a deal with JPMorgan Chase and Goldman Sachs to get AIG private financing. However, the two firms were unable to raise the necessary money because of the liquidity problems caused by the credit crisis and the general fear of the severity of AIGs financial problems. This left the Fed with only two options: bail AIG out or let it collapse. Because AIG was so large and deeply interconnected with the global economy, letting AIG collapse could potentially have caused major economic damage around the world. Additionally, everyone insured by AIG or invested in its financial products would have suffered financial losses. AIG, in the Feds view, was too big to be allowed to fail. Therefore, the Fed chose to save AIG and on September 16, 2008 it agreed to provide the insurance company with $85 billion in federal funds. The bailout gave the Fed an 80 percent controlling stake in AIG, which effectively nationalized the insurer. Unfortunately, AIG was already deeply in trouble and the initial loan proved to be inadequate. By the middle of October 2008 it had used up $61 billion of the Fed loan to keep itself afloat. The speed at which AIG spent the loan led credit analysts to downgrade some of AIGs debt. Credit rating agencies put some of the debt on a negative credit watch, which implied that further downgrades were possible. The downgrade signaled to investors that the debt was still risky and so they were even less willing to invest more of their money in AIG. AIG also

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faced calls to post new collateral as a result of the downgrade. Because AIG was spending the loan so quickly, the Fed agreed on October 8, 2008 to lend another $37.8 billion to the insurer. AIG said it planned to use the money to improve the liquidity of its securities lending business. By shoring up liquidity, AIG intended to preserve more of the original Fed loan and then use that money to finance the closure of AIGFP and a company restructuring. However, as of October 24, 2008, AIG had already spent $90.3 billion of the $122.8 billion in loans extended to the insurer. The Fed, which now controls AIG, began selling off some of the companys profitable subsidiaries in an effort to raise more cash. AIG used up the loans quickly because CDOs decreased in value as the financial crisis worsened, forcing AIG to put up more money as collateral for the insurance policies it wrote on the CDOs. Therefore, on November 12, 2008, the Fed revised AIGs bailout plan by increasing the amount of federal aid to $150 billion and by setting up a special purpose entity to buy the CDOs. By buying up the CDOs, the Fed allowed the banks that owned the CDOs originally to cancel the insurance policies issued by AIG because the CDOs no longer posed a risk to the banks once they were sold. This allowed AIG to stop putting up collateral on CDOs that continued to decrease in value and thereby use its federal loan money for other purposes. The Fed continued to aid AIG after its initial bailout failed because the insurers collapse would have caused a chain reaction and the financial markets, already deeply damaged by the bankruptcy of Lehman Brothers, would have sustained serious and widespread damage. The collapse of AIG likely would have caused a global credit catastrophe, reaching beyond the United States into all the 130 nations with which AIG has dealings. D. As a Result of the Crisis, Each Remaining Institution Is Likely to Operate Under Institutional and Regulatory Changes The financial crisis had a terribly damaging effect on some of the largest players in the

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global economy. The collapse of major financial institutions forced the U.S. and U.K. governments to make difficult decisions about which institutions to support and which to let fail. Though the governments bailed out in some way four of the five institutions described, none of these institutions will be the same in the future. The era of huge Wall Street investment banks like Bear Stearns and Lehman Brothers appears to be over. In the United Kingdom, the crisis forced regulators to investigate the factors that led to Northern Rock's failure, which is likely to lead to changes in the way its commercial banks are regulated. Though Fannie and Freddie still exist in a new form, it is unlikely that the government will give them the same leeway in their operations as it did before the crisis. A changed mortgage market will necessitate institutional changes, as well. Finally, the lesson of the AIG bailout is likely to lead to insurance regulatory reform, and it is unlikely that an insurer like AIG will allow a division to take so much risk again after the example of AIGFP. Sources 1 AIGs New Bailout Package: Banks Can Unload CDOs, NEWSWEEK, http://www.newsweek.com/id/161199. 2. Jenny Anderson, Shares of Lehman Brothers Take a Beating, NY TIMES, July 11, 2008, available at http://www.nytimes.com/2008/07/11/business/11lehman.html?scp=7&sq=lehman %20brothers&st=cse. 3. Edmund L. Andrews, et al, Feds $85 Billion Loan Rescues Insurer, NY TIMES, Sep. 17, 2008 http://www.nytimes.com/2008/09/17/business/17insure.html?partner=rssnyt. 4. Bear Run: Why the Fed Had to Bail Out Bear Stearns, Slate.com, Mar. 18, 2008, available at http://www.slate.com/id/2186792/. 5. Bear Stearns Cos., Inc., NY TIMES, available at http://topics.nytimes.com/top/news/business/companies/bear_stearns_companies/index.html (last visited Oct. 20, 2008). 6. SHARON BLEI, THE BRITISH TRIPARTITE SUPERVISION SYSTEM IN THE FACE OF THE NORTHERN ROCK RUN, http://stlouisfed.org/banking/SPA/WorkingPapers/SPA_2008_01.pdf. 7. William D. Cohan, Inside the Bear Stearns Boiler Room, FORTUNE, Mar. 4, 2009, available at

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http://money.cnn.com/2009/03/02/magazines/fortune/cohan_houseofcards.fortune (originally published in WILLIAM D. COHAN, HOUSE OF CARDS: A TALE OF HUBRIS AND WRETCHED EXCESS ON WALL STREET (2009)). 8. William D.Cohan, Where Are They Now?, FORTUNE, Mar. 4, 2009, available at http://money.cnn.com/2009/03/02/magazines/fortune/cohan_houseofcards5.fortune/index.htm? postversion=2009030306 (originally published in WILLIAM D. COHAN, HOUSE OF CARDS: A TALE OF HUBRIS AND WRETCHED EXCESS ON WALL STREET (2009)). 9. William D. Cohan, Trading Securities and Ferraris, FORTUNE, Mar. 4, 2009, available at http://money.cnn.com/2009/03/02/magazines/fortune/cohan_houseofcards2.fortune/index.htm? postversion=2009030306 (originally published in WILLIAM D. COHAN, HOUSE OF CARDS: A TALE OF HUBRIS AND WRETCHED EXCESS ON WALL STREET (2009)). 10. William D. Cohan, Goldman Questions Bears Marks, FORTUNE, Mar. 4, 2009, available at http://money.cnn.com/2009/03/02/magazines/fortune/cohan_houseofcards5.fortune/index.htm? postversion=2009030306 (originally published in WILLIAM D. COHAN, HOUSE OF CARDS: A TALE OF HUBRIS AND WRETCHED EXCESS ON WALL STREET (2009)). 11. Conde Nast Portfolio.com, The Bear Facts, Mar. 14, 2008, available at http://www.portfolio.com/news-markets/top-5/2008/03/14/The-Bear-Facts. 12. The End of Lehman Brothers, FINANCIAL TIMES, Sept. 15, 2008, available at http://www.ft.com/cms/s/0/2c0c5d82-8344-11dd-907e-000077b07658,dwp_uuid=5e34aac48ae9-11dd-b634-0000779fd18c.html (last visited Oct. 21, 2008) 13. Fannie Mae and Freddie Mac in Turmoil, FINANCIAL TIMES, July 10, 2008, available at http://www.ft.com/cms/s/0/019a648c-4e91-11dd-ba7c-000077b07658.html. 14. Martin Farris, What Happened to Fannie Mae & Freddie Mac and Why You Should Care, GoSanAngelo.com, http://www.gosanangelo.com/news/2008/jul/17/martin-farris-whathappened-to-fannie-mae-and/. 15. A History of Fannie Mae and Freddie Mac, FINANCIAL TIMES, July 15, 2008, available at http://www.ft.com/cms/s/0/e3e1d654-5288-11dd-9ba7-000077b07658.html. 16. JPMorgan to Buy Bear Stearns for $236 Million, FINANCIAL TIMES, Mar. 16, 2008, available at http://www.ft.com/cms/s/0/e2206ed2-f380-11dc-b6bc-0000779fd2ac.html. 17. JPMorgan Lifts Bear Offer Fivefold, FINANCIAL TIMES, Mar. 24, 2008, available at http://www.ft.com/cms/s/0/35054692-f9a6-11dc-9b7c-000077b07658.html. 18. David Kestenbaum, Fed Loosens Rules for Ailing Investment Banks, Morning Edition, NPR.org, Sept. 16, 2008, available at http://www.npr.org/templates/story/story.php? storyId=94648959. 19. Peter T. Larson & Lina Saigol, Nomura Offers Bonuses to Lehman Staff, FINANCIAL TIMES, Sept. 25, 2008, available at http://www.ft.com/cms/s/0/f19451ac-8b39-11dd-b634-

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0000779fd18c.html. 20. Stephen Labaton & Steve Weisman, U.S. Weighs Takeover of Two Mortgage Giants, NY TIMES, July 11, 2008, available at http://www.nytimes.com/2008/07/11/business/11fannie.html? scp=4&sq=fannie%20mae%20freddie%20mac&st=cse. 21. The Last Days of Bear Stearns, FORTUNE, Mar. 31, 2008, available at http://money.cnn.com/2008/03/28/magazines/fortune/boyd_bear.fortune/. 22. Lehman Brothers and Bear Stearns: Whats the Difference?, CATO Institute, Sept. 25, 2008, available at http://www.cato.org/pub_display.php?pub_id=9665. 23. Lehman Brothers Holdings, Inc., NY TIMES, available at http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.ht ml?scp=1-spot&sq=lehman%20brothers&st=cse (last visited Jan. 14, 2009). 24. Lehman Credit Spreads Widen Amid KDB Speculation, REUTERS, Sept. 5, 2008, available at http://www.reuters.com/article/etfNews/idUSN0541638220080905. 25. Lehman Weighs Split to Shed Troubling Loans, NY TIMES, Sept. 4, 2008, available at http://www.nytimes.com/2008/09/05/business/05lehman.html?_r=1&em. 26. Lehman Files for Bankruptcy; Merrill is Sold, NY TIMES, Sept. 14, 2008, available at http://www.nytimes.com/2008/09/15/business/15lehman.html. 27. Lessons of the Fall, THE ECONOMIST, Oct. 18, 2007, available at http://www.economist.com/displaystory.cfm?story_id=E1_JJRRRGV. 28. Barry Meir and Mary Williams Walsh, A.I.G. to Get Additional $37.8 Billion, NY TIMES, Oct. 8, 2008 http://www.nytimes.com/2008/10/09/business/economy/09insure.html. 29. Gretchen Morgenson, Behind AIGs Crisis, a Blind Eye to Risk, NEW YORK TIMES, Sep. 28, 2008 http://topics.nytimes.com/top/news/business/companies/american_international_group/index.htm l?scp=1-spot&sq=aig&st=cse. 30. Gretchen Morgenson, The Fannie and Freddie Fallout, NY TIMES, July 13, 2008, available at http://www.nytimes.com/2008/07/13/business/13gret.html?_r=1&scp=5&sq=fannie%20mae %20freddie%20mac&st=cse&oref=slogin. 31. Mutually Assured Mayhem, BUSINESSWEEK, July 9, 2007, available at http://www.businessweek.com/magazine/content/07_28/b4042037.htm?chan=search (last visited Oct. 20, 2008). 32. Newscientist, The Blunders That Led to the Banking Crisis, Sept. 25, 2008, available at http://www.newscientist.com/article/mg19926754.200-the-blunders-that-led-to-financialcatastrophe.html?DCMP=ILC-hmts&nsref=top1_bar.

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33. Joe Nocera & Edmund L. Andrews, The Reckoning: Struggling to Keep Up as the Crisis Raced On, NY TIMES, Oct. 23, 2008, at A1. 34. Matthew Phillips, The Monster that Ate Wall Street, NEWSWEEK, Oct. 6, 2008, available at http://www.newsweek.com/id/161199. 35. Press Release, Securities & Exchange Commn, Chairman Cox Announces End of Consolidated Supervised Entity Program, Sept. 26, 2008, available at http://www.sec.gov/news/press/2008/2008-230.htm. 36. Q&A: Fannie Mae & Freddie Mac, Al Jazeera, Sept, 10, 2008, available at http://english.aljazeera.net/business/2008/09/20089971713856139.html. 37. Red Flags in Bear Stearns Collapse, USA TODAY, Mar. 19, 2008, available at http://www.usatoday.com/money/industries/banking/2008-03-17-bear-stearns-bailout_N.htm. 38. Securities & Exchange Commn, SEC Rulemaking and Other Initiatives, http://www.sec.gov/about/offices/oia/oia_rulemaking.htm (last visited Jan. 26, 2009). 39. Securities & Exchange Commn, Consolidated Supervision of Broker-Dealer Holding Companies, Program Overview and Assessment Criteria, http://www.sec.gov/divisions/marketreg/consupervision.htm (last visited Jan. 26, 2009). 40. Andrew R. Sorkin, JP Morgan Pays $2 a Share for Bear Stearns, NY TIMES, Mar. 17, 2008. 41. Hugh Son, AIG Taps $90.3 Billion From Government Credit Line, Bloomberg.com, Oct. 24, 2008 http://www.bloomberg.com/apps/news?pid=20601103&sid=aNYcIjrc7.g4&refer=us. 42. Andrew R. Sorkin, Lehman Files for Bankruptcy, Merrill is Sold, NY TIMES, Sept. 14, 2008, available at http://www.nytimes.com/2008/09/15/business/15lehman.html?scp=9&sq=lehman %20brothers&st=cse. 43. Louise Story & Ben White, The Road to Lehmans Failure Was Littered With Lost Chances, NY TIMES, Oct. 6, 2008, at B1. 44. Wisegeek.com, What Happened to Bear Stearns?, available at http://www.wisegeek.com/what-happened-to-bear-stearns.htm (last visited Oct. 30, 2009). 45. U.S. Securities & Exchange Commn, Short Sales (Apr. 19, 2006), available at http://www.sec.gov/answers/shortsale.htm (last visited Oct. 21, 2008). 46. U.S. Seizes Fannie and Freddie, CNN MONEY, Sept. 7, 2008, available at http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm? postversion=2008090711. 47. They All Fall Down, NEWSWEEK, Sept. 15, 2008, available at http://www.newsweek.com/id/159010.

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47. Juilia Werdigier, Government to Control Struggling British Bank, NY TIMES, Feb. 18, 2008 http://www.nytimes.com/2008/02/18/business/worldbusiness/18northern.html. 48. What Are the Origins of Fannie Mae and Freddie Mac?, History News Network, Dec. 8, 2003, available at http://hnn.us/articles/1849.html. 49. Why They Let Lehman Die, CNNMoney, Sept. 15, 2008, available at http://money.cnn.com/2008/09/15/news/companies/why_bear_not_lehman/index.htm? postversion=2008091516. 50. Why Lehmans Failure is the Best Outcome, The Motley Fool, Sept. 15, 2008, available at http://www.fool.com/investing/value/2008/09/15/why-lehmans-failure-is-the-best-outcome.aspx. 51. Why They Let Lehman Die, CNNMoney, Sept. 15, 2008, available at http://money.cnn.com/2008/09/15/news/companies/why_bear_not_lehman/index.htm? postversion=2008091516. 52. Why Lehman Brothers is Not Bear Stearns, MarketBeat, Sept. 11, 2008, available at http://blogs.wsj.com/marketbeat/2008/09/11/why-lehman-brothers-is-not-bear-stearns/.

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