Bernanke: Fed could do nothing to save Lehman

The Federal Reserve was powerless to stop the collapse of Lehman Brothers in 2008, the central bank's chairman said yesterday, but he was too scared to say so in public at the time.

Ben Bernanke admitted that he had been less than straightforward in his testimony to Congress in the days after the investment bank went bankrupt as he thought that admitting the limits of the Fed's power would only make the market panic worse.

His confession was made at the latest hearing of the Financial Crisis Inquiry Commission, which is investigating the causes of the crisis and has now zoned in on whether the government should have bailed Lehman out.

The Fed chairman created a "myth" that the government had decided to let Lehman fail, he said, referring to Congressional testimony in which he said federal authorities had "declined to commit public funds to support the institution".

In fact, there was never the option, he told the FCIC. "It was a judgement at that moment, with the system in tremendous stress and with other financial institutions under threat of a run or panic, that making that statement might have even reduced confidence further and led to further pressure," he said.

The collapse of Lehman was such a shock to the financial system that it caused a run on even super-conservative money market funds, something that could within days have left businesses unable to pay their workers. The panic was halted only when the US Treasury said it would seek permission to use taxpayer money to support the system.

On Wednesday, Dick Fuld, the former chief executive of Lehman, lashed out at the Fed and the Treasury for failing to rescue of his firm, which he said was financially sound and needed only emergency loans to tide it over until the panic subsided.

That version of events was roundly rejected by Mr Bernanke yesterday. Lehman did not have enough collateral to put up against any loans, and customers would have kept deserting the firm anyway. "If I could have done anything to save it, I would have saved it," he said. "If we had lent to Lehman, not only would we have been unsuccessful but [we] would have saddled the taxpayer with tens of bilions of dollars of losses."

The FCIC must report on the relative importance of almost two dozen factors in the credit crisis by mid-December, and has this week been examining whether banks became too big to fail, and what might have been done either to prevent them becoming too big, or to enable them to fail without wrecking confidence in the wider financial system.

Mr Bernanke and Sheila Bair, the chairman of the Federal Deposit Insurance Corp, another banking regulator, both expressed confidence that the creation of a new "resolution authority" to wind down failed firms in an orderly manner makes a repeat of the 2008 panic much less likely.

Ms Bair said: "The new resolution powers, the enhanced regulatory and supervisory cooperation mandated in the law, and the resolution planning authority provide an infrastructure to end 'too big to fail'. Applying high standards for transparency and simplification of overly complex financial firms must be pursued aggressively to make this a reality."

Sport
sportGareth Bale, Carl Froch and Kelly Gallagher also in the mix for award
News
Japan's Suntory Beverage & Food has bought GlaxoSmithKline's Lucozade and Ribena
news
News
A tongue-eating louse (not the one Mr Poli found)
newsParasitic louse appeared inside unfilleted sea bass
Life and Style
Out and about: for 'Glee' character Bert Hummel, having a gay son was a learning curve
lifeEven 'cool' parents need help parenting gay teens
PROMOTED VIDEO
News
ebooksNow available in paperback
Money
Anyone over the age of 40 seeking a loan with a standard term of 25 years will be borrowing beyond a normal retirement age of 65, and is liable to find their options restricted
propertyAnd it's even worse if you're 40
Arts and Entertainment
Perhaps longest awaited is the adaptation of Jack Kerouac’s On the Road with Brazil’s Walter Salles directing and Sam Riley, Kristen Stewart and Viggo Mortensen as the Beat-era outsiders
books
Arts and Entertainment
theatreSinger to join cast of his Broadway show after The Last Ship flounders at the box office
Life and Style
fashion'To start singing with Pharrell is not that bad, no?'
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Argyll Scott International: Risk Assurance Manager

Negotiable: Argyll Scott International: Hi All, I'm currently recruiting for t...

Argyll Scott International: Business Analyst - MGA - London Market - Insurance Broker

£50000 - £60000 per annum + benefits: Argyll Scott International: A Business A...

Ashdown Group: PR, Marketing & Events Executive - Southwark, London - £35,000

£30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...

Selby Jennings: C++ Developer – Hedge Fund – New York

$80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...

Day In a Page

In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

Iran is shifting from pariah to possible future policeman of the Gulf

Robert Fisk on our crisis with Iran
The young are the new poor: A third of young people pushed into poverty

The young are the new poor

Sharp increase in the number of under-25s living in poverty
Greens on the march: ‘We could be on the edge of something very big’

Greens on the march

‘We could be on the edge of something very big’
Revealed: the case against Bill Cosby - through the stories of his accusers

Revealed: the case against Bill Cosby

Through the stories of his accusers
Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

The Meaning of Mongol

Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible