US Federal Reserve chairman Ben Bernanke yesterday said he was partly to blame for leaving the wrong impression that the central bank could have saved Lehman Brothers from failure in 2008.
Bernanke, testifying before a congressional commission examining the causes of the worst financial crisis in 80 years, said he thought it “very likely” the investment bank was insolvent and lacked sufficient collateral to borrow enough from the central bank to avert collapse.
But he said he kept that view to himself in congressional testimony given just days after Lehman’s September 2008 bankruptcy because he was worried that such comments might have spooked already panicky financial markets.
“I regret not being more straightforward there because clearly it has supported the mistaken impression that in fact we could have done something we could not have done,” he said.
The Financial Crisis Inquiry Commission wrapped up a two-day session yesterday focusing on “too big to fail” firms whose disorderly collapse could destabilise the global economy.
On Wednesday, commission chairman Phil Angelides questioned whether politics had played a role in the decision not to bail out Lehman Brothers, citing emails showing US officials fretting over how the media might portray a taxpayer-funded rescue of a Wall Street titan. Lehman’s bankruptcy triggered widespread panic, hastening the worst global recession since World War Two.
“It was with great reluctance and sadness I conceded that there was no other option” but to let Lehman fail, Bernanke 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,” he added.
City A.M. Reporter