country ’ s circumstances. but two separate situations may help us identify a few policy options. first, in cases of significant market stress, emergency measures, such as those oriented toward managing the foreign - exchange market and capital flows, might be considered. in particular, the use of international reserves to attenuate market volatility may be helpful, as shown by recent responses in various severely stressed economies, which also tightened monetary policy. however, evidence on the effectiveness of foreign - exchange market intervention is mixed, and the impact is almost always temporary. in addition, use of this policy should not impede adjustment to any existing large external imbalances. moreover, the imposition of capital controls has limited short - term success, usually affects only the composition of flows, and may harm prospects for future financing. 2 in cases of homegrown economic stresses, the limitations of emergency measures are more obvious. for example, some nations have experienced over - leveraging and price bubbles either from capital booms or loose fiscal and financial policies, which may have weakened empirical evidence on the effectiveness of policy interventions on foreign exchange markets and capital flows can be found in broto, c. ( 2013 ), “ the effectiveness of forex interventions in four latin american countries, ” emerging markets review 17 ; and forbes, et. al. ( 2013 ), “ capital controls and macroprudential measures : what are they good for? ” diw berlin, german institute for economic research, discussion paper 1343. bis central bankers ’ speeches banks ’ balance sheets. tackling underlying problems as soon as possible is a necessary condition to regain stability. available tools include fiscal and monetary tightening, micro and macro prudential policies and exchange rate adjustment. in the short term, some tradeoffs may be involved. for example, more restrictive monetary policy to counteract capital outflows may weaken a cyclical upturn and result in disorderly deleveraging, but keeping monetary policy loose could trigger inflation and exacerbate balance - of - payment problems. second, even if no significant imbalance is evident, preventive policies are always called for to prepare for potential financial strain. possible fragilities to watch for and correct preemptively include rapidly rising external debt and foreign currency mismatches, as well as domestic asset price bubbles. all in all, the best strategy is to strengthen macroeconomic foundations, fortify the financial system through better regulation and oversight, and promote reforms that enhance economic efficiency and hence

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