Thursday, September 18, 2008

Greg Mankiw's Blog: The F.A.Q.’s of Lehman and A.I.G.

Greg Mankiw's Blog: The F.A.Q.’s of Lehman and A.I.G.


Bear Stearns was bailed out for two reasons. One was that the Fed had very
imperfect information about what was going on at Bear.

…Bear’s counterparties in many transactions were not prepared for the sudden demise of Bear. A Bear bankruptcy might have triggered a wave of forced selling of
collateral that Bear would have given its counterparties. Given the potential
chaos that would have resulted from Bear Stearns filing for bankruptcy, the Fed
had little choice but to engineer a rescue.

It says, no news is a good news, and teach them lesson.

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