ROBERT SIEGEL, Host:
NPR's John Ydstie has been looking into how the sale could take shape. And he joins us now. Hi, John.
JOHN YDSTIE: Hi, Robert.
SIEGEL: One big development today, word that secretary of the Treasury Henry Paulson has out his foot down saying no government money for sale or bailout of the firm.
YDSTIE: That's right. This morning, people who wanted to be described as sources familiar with Secretary Paulson's thinking said he adamantly was opposed to any government funds being used to resolve the situation. The implication here is that the potential buyers of Lehman were asking for some government backing similar to the $29 billion the Fed put on the line to rescue Barry Stearns back in March.
SIEGEL: Well, what's the big difference between Barry Stearns and Lehman Brothers? Why was it necessary to put up government money to bail out Barry Stearns, in Secretary Paulson's view, but not necessary for Lehman?
YDSTIE: So, if firms were overexposed financially to Lehman, they've had plenty of time to adjust. The second thing is that Paulson thinks there should be no taxpayer funds committed because Lehman has access to a whole line of credit at the Federal Reserve that was created after Barry Stearns' failure just to help firms in distress and provide a more orderly resolution. It's called the primary dealer credit facility. Primary dealers are the Wall Street firms like Lehman who are securities dealers who make the market for U.S. stocks and bonds.
SIEGEL: Well, doesn't that, in fact, amount to taxpayer money being put at risk for Lehman even though Secretary Paulson says there isn't going to be any?
YDSTIE: Well, the terms of the loans make it unlikely the taxpayers would get stuck. First, they're one-day loans that have to be renewed on a daily basis and they require a collateral. That collateral could any number of assets from U.S. government treasury bonds to mortgage-back securities.
SIEGEL: That doesn't sound very encouraging...
YDSTIE: It doesn't.
SIEGEL: ...or confidence building. Mortgage-back securities are at the heart of the whole financial mess.
YDSTIE: Yes, they are. But the securities pledged for these loans would be independently valued at the current market price every day. So, I think there are some taxpayer exposure here, but not particularly large.
SIEGEL: Well, back to the plight of Lehman Brothers, is it likely to find a buyer if the U.S. government declines to put any money on the table?
YDSTIE: Well, that's the big question. But according to news reports, there are a number of significant suitors, among them, Bank of America and Barclays, the British bank. In fact, the Financial Times is reporting that the Bank of America, the investment bank J.C. Flowers and China Investment Company are considering a possible joint bid for Lehman Brothers. Now, China Investment Company is China's sovereign wealth fund and it would be spending the Chinese government's money. So, the U.S. government is declining to bail out one of the bastions of capitalism, but if this report is true, it could be that Lehman Brothers ends up being saved by the communists in Beijing.
SIEGEL: And we'd expect that they want to resolve all this over the weekend, I assume.
YDSTIE: Well, there's a lot of speculation it could happen this weekend, much like Fannie and Freddie bailout. But it could take longer. We'll see.
SIEGEL: Okay. Thank you, John.
SIEGEL: NPR's Economics correspondent, John Ydstie. Transcript provided by NPR, Copyright NPR.
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