Rebirth of England.

Chapter 605: The Abandoned Lehman Brothers
It should be pointed out that Lehman Brothers applied for bankruptcy protection under Act No. 11, which is different from directly applying for bankruptcy.

Filing for bankruptcy directly means that the company will be completely dead and there will be no room for maneuver. The only way left is to be liquidated and closed...

Filing for bankruptcy protection means that the company can reorganize its business in the coming months, try its best to become profitable again - the bankrupt company can still operate as usual, the company's management will continue to be responsible for the company's daily operations, and its stocks and bonds will continue to be traded in the market.

So after Lehman Brothers announced that it had filed for bankruptcy protection, they began to sell some of its assets to obtain funds to fill the "hole".

On July 7, Barclays, the third largest bank in the UK, invested US$16 billion to acquire Lehman Brothers' New York headquarters, two data centers and some trading assets.

Nomura Holdings Inc. (NMR), Japan's largest securities company, signed an agreement with Lehman Brothers on July 7 to acquire Lehman's Asia-Pacific business (excluding South Korea).

The next day, Standard Chartered announced that it would acquire Lehman Brothers' European and Middle Eastern operations.

Then on July 7, United Energy Group said its subsidiary British Gas Networks had agreed to acquire its subsidiary Eagle Energy Partners I, LP from Lehman Brothers.

The move is aimed at optimizing the gas supply business under United Energy Group.

On the same day, private equity firms Bain Capital LLC and Hellman & Friedman LLC reached an agreement with Lehman Brothers to invest $21.5 billion to acquire most of Lehman Brothers' investment management businesses, including Neuberger Berman.

On August 8, Nomura Holdings signed an agreement with Lehman for the second time, agreeing to acquire Lehman Brothers' Indian back-office business.

The once-glorious Lehman Brothers had been shattered beyond recognition in less than three weeks.

At this point, Lehman Brothers finally hit rock bottom and would never see the light of day again.

However, shortly after Lehman Brothers declared bankruptcy protection, on July 7, the Federal Reserve announced that it would use special authorization obtained after the stock market crash in 15 to provide an $1929 billion emergency loan to American International Group (AIG), which was on the verge of bankruptcy.

In exchange, the U.S. government acquired 79.9% of the shares of the largest insurance company in the United States.

Barron did not expect America to decide to provide financial assistance to AIG.

As early as when Lehman Brothers declared bankruptcy protection, he had sent people to communicate with Barclays Bank and other institutions to "take what they need" from the assets owned by Lehman Brothers.

At that time, he said to Ivanta, who came to New York and lived in the top floor of the Woolworth Building in Manhattan:

"The short selling of Lehman Brothers will be the most successful one, because the previous rescue of large institutions such as Fannie Mae and Freddie Mac by the United States made Lehman Brothers' CEO Fuld too confident. He believed that when the situation got out of control, Lehman Brothers would also get government assistance..."

"Indeed, I heard that Lehman Brothers was not eager in the negotiations before, and even seemed perfunctory..."

Ivanta asked in disbelief:
“Although this attitude may annoy the government, will they really change their attitude and let the current crisis go?”

"No, in fact, Paulson and his team need to find a company that is big enough to serve as a warning to the bankers on Wall Street and let them know that the government will not always clean up their messes. Unfortunately, Lehman Brothers was the one that was chosen..."

Taking a deep breath, Ivanta said thoughtfully:

"Also, this will alleviate the public criticism of the party for being too aggressive in bailing out the bankers?"

"That's true. After all, this year's election may not be that easy for the opposition party."

……

As Barron and Evanta discussed, the collapse of Lehman Brothers and the actions taken by the United States sparked all kinds of controversy.

Some people pointed out, why didn't US Treasury Secretary Paulson or Federal Reserve Chairman Ben Bernanke directly rescue Lehman Brothers?
In addition, a large number of people have strongly criticized the official takeover of Bear Stearns, Fannie Mae and Freddie Mac, and American International Group.

The crisis broke out at Bear Stearns before Lehman Brothers. Bear Stearns held a large number of mortgage-backed securities, and investors redeemed a large amount of cash, which led to the depletion of cash reserves and the company was on the verge of bankruptcy.

At that time, New York Fed Chairman Geithner discovered this systemic risk and immediately reported it to the Federal Reserve.

The Federal Reserve and the Treasury Department jointly intervened, with the Federal Reserve providing $300 billion in emergency support to support JPMorgan Chase's acquisition of Bear Stearns.

However, it was this action of the US government that sent a rescue signal to the market. Then, Treasury Secretary Paulson took over the two housing agencies, Fannie Mae and Freddie Mac, which had been caught in the vortex.

The specific plan is that the Treasury Department will inject capital into Fannie Mae and Freddie Mac and acquire related preferred shares; relevant government regulatory agencies will take over the daily operations of the agencies and appoint new leaders.

Fannie Mae and Freddie Mac are the two largest mortgage companies in the United States. They used to be agencies under the federal government. Although they were later privatized, they have long received government subsidies.

Therefore, in the minds of the American people, the "two houses" have received implicit guarantees from the federal government.

But for Paulson, facing the problems of the "two houses", there is no other choice but to rescue them.

Paulson said:

"Fannie Mae's problems have exposed financial markets to systemic risk, and taking over these two institutions is currently the 'best means' to protect the market and taxpayers."

However, Paulson's takeover of the two housing agencies triggered moral hazard in the market.

At the same time, a large number of critics believe that taxpayers' money should not be used to bail out these greedy bosses.

The Wall Street Journal said at the time:

"If the federal government rescues Lehman Brothers after it rescues Bear Stearns and Fannie Mae, it would be tantamount to indicating that the government will backstop all institutions in crisis, and this policy of the federal government will encourage more reckless risk-taking."

So it is understandable that when it was Lehman Brothers' turn next, Paulson's attitude reversed.

At the beginning, almost everyone, including Lehman CEO Fuld, believed that Paulson would not sit idly by and watch the company fail.

However, this time, Paulson's attitude was extremely firm, and he insisted from beginning to end that the Treasury Department would not provide funds to rescue Lehman Brothers.

Why did Paulson save Bear Stearns, Freddie Mac, and Fannie Mae, but let Lehman Brothers die?

In fact, Paulson did not stand idly by.

However, his strategy is no longer direct rescue, but to force Wall Street to pay money to tide over the difficulties.

However, although it is an ideal way to mobilize the power of the market to resolve the systemic risks in the market, the differences therein far exceeded Paulson's expectations.

Both Paulson and Bernanke realized that the previous rescue of Bear Stearns and the two housing agencies had triggered moral hazard in the market and had also encountered overwhelming criticism.

This time they insisted on not allowing moral hazard to spread, and also tried to let a financial institution go bankrupt as a warning to others.

After confirming that Lehman Brothers' bankruptcy was inevitable, Paulson and Bernanke gave Bush a detailed report.

Bush Jr.'s attitude was that he did not want to see Lehman Brothers go bankrupt, but he respected Paulson's approach and did not want the Treasury Department to take over Lehman Brothers directly.

Because this year is an election year, if Bush Jr. overemphasizes government aid, it will certainly be detrimental to the Elephant Party's continued victory in the election.

Shortly before Lehman filed for bankruptcy, the Elephant Party explicitly stated in its election manifesto:

“We do not support government bailing out private institutions.”

Previously, the government's intervention in Bear Stearns, especially the Treasury Department's takeover of the "two houses", had put Paulson and Bush Jr. in controversy.

Therefore, from the perspective of external factors, Lehman Brothers was unlucky and became a victim of the political and market game at this critical juncture.

But what cannot be ignored is that with this consequence, Lehman Brothers itself had even bigger problems.

(End of this chapter)