Over the weekend I went back and read some contemporaneous research from Deutsche Bank, Citi, and Goldman after Lehman’s awful September 11th, 2008 quarter… that precipitated its downfall… I wanted to try to figure out what really went wrong… because Geithner hasn’t told us… in hind sight it was actually very clear why we were so complacent about Lehman… Touhman, the research analyst, had been convinced by the Fed… particularly by the New York Fed, Tim Geithner was president at the time… that a thing called the primary dealer credit facility, PDCF, set up in March after the Bear Stearns debacle, would keep Lehman from going under… every piece of research cited that… every piece of research from that time indicated “that liquidity is not an immediate concern”… that is a Goldman Sachs piece… that is exactly what every single firm said because of the live line that Geithner set up… these analysts believe, I don’t know where they could have possibly gotten the idea if not from the Fed, that this PDCF life line was specifically created that we would not have another Bear Stearns… Lehman would have been Bear Stearns… so that is what led to the complacency about Lehman… and the believe that at least any institution would have been kept alive until buyers could be found.. no matter what.

They believed this because Geithner created the life line… yeah it was another one of his silly eloquent solutions that brought us to our knees… now what he did was he cited… now I want to be really, really verse about this, because you take a lot of heat when you get this stuff wrong… he cited a thing called Section 13 Three of the Federal Reserve Act… which I actually went and read… it allows credit for institutions “in unusual and exotent circumstances”… or put more simply… Geithner indicated that Lehman wouldn’t be allowed to fail… that is what he did when he created the facility… he created the life line, and then he cut it… and that was all she wrote… I don’t know what could more unusual or extenuate than stopping one of the remaining handful of investment banks from going under… it is clear from the research that Lehman needed $5B… let’s say that they needed $25B… I don’t care let’s manufacture it by 5... really, just take it up… that is much less than $180B that we guaranteed for AIG in similar unusual and extenuating circumstance… one that wouldn’t have occurred if Lehman had been allowed to live… and that happened the next day.

Why does all of this matter… because in a Senate confirmation hearing Geithner was asked directly why he didn’t save Lehman and he said, and has kept saying that he had no legal authority… no elected official has ever challenged his exertion or done the research about why people thought he had that authority… it is because of the PDCF, the facility set up to rescue banks… it specifically gave him that authority…if he had the authority, than why did he let Lehman go under… I believe, and my sources who are in the room tell me this is the case, that Lehman was let go because Geithner was worried about moral hazard… not because he was worried about the legal authority… which by the way was certainly available the next day for the far more agrrecious AIG… moral hazard… he was worried about saving the irresponsible banker problems, we save them we are in trouble… of course, no one ever talks about the moral hazard of having innocent people lose trillions of dollars world wide… when Lehman went down… because Geithner didn’t supervise the banks and the investment banks… and because he didn’t live up to his lifeline word.

I think it is outrageous that no one has looked into this further… and more outrageous that Geithner has not owned up to the mistake… you know why… because for all we know he is right now ready to lehmanize, yes it sounds, it is euthanize… lehmanize Bank of America, Citigroup, and just about every other bank… and you wonder why Bank of America is at $4 and Citigroup is at $2... I say paging Mr. Geithner… paging Mr. Geithner… tell us if you are going to lehmanize our big institutions… and tell us today.