But Mr. Paulson and Mr. Geithner made it clear to the company, its potential suitors and to the meeting participants on Friday that the government has no plans to put taxpayer money on the line. The government is deeply worried that its actions have created a moral hazard and the Federal Reserve does not want to reach deeper into its coffers. Instead, Mr. Paulson and Mr. Geithner insist that Wall Street needs to come up with an industry solution to try to stabilize Lehman Brothers and calm the markets.
Still, some of the other Wall Street banks, facing billions of dollars in losses themselves, have resisted this approach. They argue that Lehman Brothers overreached and brought its current troubles on itself. If there are no bidders for Lehman Brothers, these banks say they can collect their collateral and liquidate the troubled firm’s assets. In this high-stake game, they may also be trying to call the government’s bluff, knowing that if push came to shove, it would provide financial support.
I wish that Mr. Paulson and Mr. Geithner would let Lehman’s Brothers fail. But their past performance does not give me hope.