the broker - dealers and their parents, including lehman ’ s broker - dealer and its parent, lehman holdings. lehman showed some signs of recovery during this period. it raised capital in june of 2008. but liquidity continued to be a significant disability. as part of its monitoring, the new york fed, in conjunction with the sec, conducted liquidity stress analyses of the investment banks, in part to evaluate their creditworthiness. those analyses suggested that lehman needed to improve its liquidity should the credit crisis intensify. again, to lehman ’ s credit, and in response to our analyses, lehman took steps to, and did, improve its liquidity. at no time, however, did anyone at the new york fed believe that lehman had sufficient liquidity to withstand what was to come in september, events that richard fuld, lehman ’ s former chief executive officer, has described as the “ perfect storm. ” 3 accordingly, as has been well - documented in the press and in the comprehensive report by anton valukas, the lehman brothers ’ bankruptcy examiner ( the valukas report ), senior federal officials, including president geithner, continually pressed lehman to find workable solutions for its capital and liquidity problems from march to september 2008. lehman executives pursued potential merger partners. they engaged in discussions with potential korean buyers and approached warren buffett. at no time did the new york fed tell lehman that it would be bailed out with taxpayer money, nor did the new york fed instruct lehman to act as if such an option was available. lehman ’ s ceo, mr. fuld, and the chairman of the lehman board of directors, thomas cruikshank, have made clear that lehman was not expecting any federal bailout. 4 both men fully understood that lehman was a public company and needed to be fully responsible for its own financial situation. lehman weekend september of 2008 will likely be remembered as an epochal period in the history of american finance. the bankruptcy filing by lehman occurred during that month, and it must be analyzed in the context of that most distressing time. on september 7, the federal housing finance agency placed fannie mae and freddie mac into conservatorship, and the treasury department used its authority, granted by congress in july 2008, to make financial support available to these two government - sponsored entities. while lehman is often considered the trigger for the systemic consequences that were to come later in the month, it is also clear that fannie

and freddie ’ s decline, among other factors, caused a number of market participants to begin “ hunkering down ” to protect their balance sheets. exposure to lehman was one of the items to be addressed. counterparties ’ reluctance to deal with lehman intensified starting on monday, september 8, 2008, such that by thursday, september 11, 2008, it was apparent to us that lehman faced a liquidity crisis – i. e., it would not be able to pay its debts as they came due. the issue was no longer whether this public company could fashion its own rescue. we had come to the point of no return, where lehman faced two alternatives : bankruptcy, or some kind of third - party rescue. the united states treasury department, working in conjunction with the federal reserve and the sec, convened a meeting of the chief executive officers of major financial institutions at the new york fed after the close of markets on friday, september 12, 2008. secretary paulson opened the meeting with a short and plain declaration that there would be no public money to support lehman. the government then gave the ceos two tasks. first, it was suggested they form a consortium to finance certain of lehman ’ s illiquid assets in richard s. fuld, jr., statement before the united states house of representatives committee on financial services, april 20, 2010. transcript, hearing on lehman brothers bankruptcy examiner report, united states house of representatives committee on financial services, april 20, 2008, pp. 136, 153. order to facilitate an acquisition. second, as a contingency, should the banking organizations fail to come up with a workable rescue plan, they should present an alternative plan to address the effects of a lehman bankruptcy, because they should anticipate that would happen monday morning. as was the case with bear stearns, the government knew that a third party would have to finance a portfolio of lehman ’ s illiquid assets in order to make lehman acceptable as a merger partner. in this case, drawing upon the precedent of the rescue of long term capital management in 1998, the government arranged for a consortium of private banks to provide the financing. and in fact, after much discussion and some disagreeable moments, the private banks agreed to do so. by sunday, september 14, the counterparties had agreed to finance approximately $ 30 billion of lehman ’ s illiquid assets in order to facilitate lehman ’ s rescue. while the structure was never finalized, it would presumably have resembled