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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

allowing its counterparties to have the option of seizing its collateral and terminating
the contracts. After the parent company filed, about  insolvency proceedings of its
subsidiaries in  foreign countries followed. In the main bankruptcy proceeding,
about , claims—exceeding  billion—have been filed against Lehman as of
September . Miller told the FCIC that Lehman’s bankruptcy “represents the
largest, most complex, multi-faceted and far-reaching bankruptcy case ever filed in
the United States.” The costs of the bankruptcy administration are approaching  bil-
lion; as of this writing, the proceeding is expected to last at least another two years. 
In his testimony before the FCIC, Bernanke admitted that the considerations be-
hind the government’s decision to allow Lehman to fail were both legal and practical.
From a legal standpoint, Bernanke explained, “We are not allowed to lend without a
reasonable expectation of repayment. The loan has to be secured to the satisfaction of
the Reserve Bank. Remember, this was before TARP. We had no ability to inject capi-
tal or to make guarantees.”  A Sunday afternoon email from Bernanke to Fed Gov-
ernor Warsh indicated that more than  billion in capital assistance would have
been needed to prevent Lehman’s failure. “In case I am asked: How much capital in-
jection would have been needed to keep LEH alive as a going concern? I gather B
or so from the private guys together with Fed liquidity support was not enough.” 
In March, the Fed had provided a loan to facilitate JP Morgan’s purchase of Bear
Stearns, invoking its authority under section () of the Federal Reserve Act. But,
even with this authority, practical considerations were in play. Bernanke explained
that Lehman had insufficient collateral and the Fed, had it acted, would have lent into
a run: “On Sunday night of that weekend, what was told to me was that—and I have
every reason to believe—was that there was a run proceeding on Lehman, that is
people were essentially demanding liquidity from Lehman; that Lehman did not have
enough collateral to allow the Fed to lend it enough to meet that run.” Thus, “If we
lent the money to Lehman, all that would happen would be that the run [on Lehman]
would succeed, because it wouldn’t be able to meet the demands, the firm would fail,
and not only would we be unsuccessful but we would [have] saddled the [t]axpayer
with tens of billions of dollars of losses.”  The Fed had no choice but to stand by as
Lehman went under, Bernanke insisted.
As Bernanke acknowledged to the FCIC, however, his explanation for not provid-
ing assistance to Lehman was not the explanation he offered days after the bank-
ruptcy—at that time, he said that he believed the market was prepared for the
event.  On September , , he testified: “The failure of Lehman posed risks. But
the troubles at Lehman had been well known for some time, and investors clearly rec-
ognized—as evidenced, for example, by the high cost of insuring Lehman’s debt in
the market for credit default swaps—that the failure of the firm was a significant pos-
sibility. Thus, we judged that investors and counterparties had had time to take pre-
cautionary measures.”  In addition, though the Federal Reserve subsequently
asserted that it did not have the legal ability to save Lehman because the firm did not
have sufficient collateral to secure a loan from the Fed under section (), the au-
thority to lend under that provision is very broad. It requires not that loans be fully
secured but rather that they be “secured to the satisfaction of the Federal Reserve