Feds, Wall Street race to try to save Lehman

da Yahoo Finance - Sunday September 14, 5:15 am ET

NEW YORK (AP) -- The field of possible buyers for Lehman Brothers narrowed Saturday, but the parties involved in the discussions over the wounded investment bank's future were at loggerheads over how to finance the rescue.

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He said the investment banks were angling for the government to provide some money, as it did when it helped JPMorgan Chase & Co. buy Bear Stearns in March, because they would get little to nothing in return for their help.
The government has drawn a line in the sand over using taxpayer money to help rescue Lehman Brothers, however.
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Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, and Merrill Lynch & Co.'s John Thain were among the chief executives at the meeting.
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AIG, the world's largest insurer, and WaMu, the nation's biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday.
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Lehman Brothers and AIG are the top priorities, said the investment banking officials. WaMu insisted Friday it has adequate capital to fund its operations even as it announced another multibillion dollar write-down on bad mortgage loans.
WaMu has 76 percent of its deposits insured by the Federal Deposit Insurance Corp., an independent agency created by Congress to insure deposits in banks and thrifts up to at least $100,000. AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.
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Government officials want to avoid a Bear Stearns-like bailout; the Fed in March agreed to provide a loan of nearly $29 billion as part of JPMorgan Chase & Co.'s takeover of the firm. Unlike Bear, Lehman can go directly to the Fed to draw emergency loans if it needs a quick source of ready cash. In recent weeks, though, there's been no indication that Lehman has done so.

Bear's sudden meltdown led the Fed to engage in its broadest use of lending powers since the 1930s. Fearful that other firms could be in jeopardy, the Fed temporarily opened its emergency lending program to investment firms, a privilege that for years was granted only to commercial banks, which are subject to tighter regulation.

Those actions -- along with the Bush administration's take over of mortgage giants Fannie Mae and Freddie Mac just last week -- have spurred concerns that taxpayers could be on the hook for billions of dollars and companies will be encouraged to take on extra risks because they believe the government will come to their aid.

Paulson and Bernanke, however, have said they needed to help Bear Stearns and Fannie Mae and Freddie Mac to avert a financial calamity that would devastate the national economy.

Lehman's Fuld is currently a member of the New York Fed's board of directors.