Government Intervention Paper
University: FIN 820 25 July

Abstract
This paper attempts to illuminate the four year-old questions still hanging around regarding the financial crisis of 2007-2009. For example, this study will detail the events that led to the problem at Lehman Brothers. What was the exposure that put Lehman Brothers at risk? What did Lehman Brothers seek from the regulators? Was there a precedent for the request? What was the reasoning for the decision by the regulators and the government? What did the Federal government learn from the Lehman Brothers case that changed how it managed the AIG situation? What would potentially have happened if the Federal government had not intervened in the AIG situation? What is …show more content…

The regulators, the banks, and the federal government decided to let Lehman go. There is never a discernable reason in the literature that could be unearthed (Breslow, 2010). The bottom line was this – Lehman could not find a buyer, Wall Street insiders and investors had already bailed on their stock, the market had given up, Lehman was let go. The irony is that this same cohort bailed out AIG about a week later on moral grounds that the government would be paid back and Lehman was a moral hazard. This seemed to indicate political motivation behind the government reasoning between AIG and Lehman by the Bush Administration. The regulators and the government sat and watched Lehman and the economy implode, as regulators failed to share the information they knew of Lehman in the spring and summer of 2008 (Ezell, 2012).
Assistant Treasury Secretary Davis said, “Regulators knew Lehman was in danger, but said that they lacked the authority to directly intervene to save them.” She incorrectly and knowingly argued that it was a bad time to ask Congress for additional authority, so they had to resort to using what power they had to instill confidence in the system (Ezell, 2012). “The American people expect the federal government to have the authority to prevent a disaster when they can see it coming. And we don’t have that authority. And they didn’t want to stand up and blast that message from the rooftops every day, because it would just