Strange Things Happening Every Day
After months of rescuing failing companies, Washington did the right thing this weekend and refused to bail out Lehman Brothers:
Hank Paulson, the treasury secretary, decided to draw a line and refuse such help. After the Fed had bailed out Bear Stearns in March and the Treasury had taken over Fannie Mae and Freddie Mac last weekend, expectations were high that they would do the same for Lehman. And that was precisely the problem: it would have confirmed that the federal government stood behind all risk-taking in the financial system, creating moral hazard that would take years to undo and expanding taxpayers' liability almost without limit.
The company filed for bankruptcy this morning. We'll see how long the new approach lasts.