From the minutes of the March 14, 2008 meeting of the Board of Governors of the Federal Reserve System:

Given the unusual and exigent circumstances, the Board authorized the Federal Reserve Bank of New York (New York Reserve Bank) to extend credit to JPMorgan Chase Bank, National Association (JPMC Bank), Columbus, Ohio, on a nonrecourse basis to provide financing to Bear Stearns, and, if the Reserve Bank in consultation with Chairman Bernanke determined it was appropriate, to other primary securities dealers, when the Reserve Bank finds that adequate credit accommodations are not available to the borrower from other banking institutions. The credit should be secured to the satisfaction of the New York Reserve Bank and should not exceed a period of 28 days. The Board also approved the New York Reserve Bank’s recommendation that the credit to JPMC Bank to provide financing to Bear Stearns be extended at the rate for discounts and advances under the primary credit program (primary credit rate).

Change Bear Stearns to Lehman Brothers. Change JPMC to whomever. Presto change-o, problem solved. No need for lame excuses after the government’s actual decision turned out to be a catastrophe.

And BTW, Dodd-Frank has made future rescues of this nature far more difficult (see Section 13.3). Some reform!

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