STEVE INSKEEP, host:
It's Morning Edition from NPR News. I'm Steve Inskeep.
RENEE MONTAGNE, host:
And I'm Renee Montagne. Financial markets are tumbling today as investors try to deal with extraordinary news. Two of Wall Street's most famous names will soon disappear. Yesterday, Lehman Brothers announced it is filing for bankruptcy, and Merrill Lynch said it is selling itself to Bank of America.
INSKEEP: We'll have more on what happens to Merrill in a moment. We begin with the Lehman failure, and NPR's Adam Davidson is on the line. Adam, good morning.
ADAM DAVIDSON: Good morning, Steve.
INSKEEP: First question is why didn't the government save Lehman the way that it stepped in for Bear Stearns or, for that matter, Fannie Mae and Freddie Mac just a few days ago?
DAVIDSON: That was the big question yesterday, and nobody was quite sure. I've been picturing kind of like a Hollywood Western down at the southern tip of Manhattan. You had the heads of the U.S. government financial system: Henry Paulson, Ben Bernanke, Tim Geithner - who's taken the lead here, that's the head of the New York Fed. And then you had, basically, the most powerful men in the private sector - they are all men, as far as I know - in that room, sitting around at conference table.
It's not like a Western in the sense that there were not horses. There were limousines and things like that. But it was like a Western in the sense that it was a huge game of chicken. It was high noon. It was the private bankers saying, we need you to bail out Lehman Brothers. We need you to do what you did with Bear Stearns. We need government money. And the government just kept saying no, no, this time, we're not going to do it.
And there seems to be two reasons. One is Lehman is not as big as Fannie Mae and Freddie Mac, not by a long shot. Secondly, the government has just had enough. They're saying, we will not have an orderly resolution to this crisis until the Wall Street firms take responsibility for their own mess without turning to the government every time.
INSKEEP: So Lehman's not too big to fail, as the phrase once was.
DAVIDSON: Yeah, I mean, Fannie Mae and Freddie Mac makes up an absurdly huge part of the global economy. They are many, many - I'd say thousand - more than a thousand times bigger than Lehman. Lehman is big. It's just nowhere near as big, even as, say, Goldman Sachs or Citibank. It's just not on the same size. Which is why, if the government wanted to send the message, we're done with the bailing-out game, it's not completely clear that that succeeds with this one because everyone knows, well, yeah, but Lehman, we can see why you wouldn't save it.
INSKEEP: Wait a minute, what are you saying? Are you saying that if there's a larger company that failed, that they might still step in? And does that send a mixed message, then?
DAVIDSON: I think there's a mixed message. I think people don't know. I think if Goldman Sachs, if Citibank, if JPMorgan, and I'm not suggesting they are in trouble, but if they got in serious trouble, I don't think anyone believes that the government would sit that one out. I think the government would step in.
INSKEEP: So are we near the end of this crisis? Have we run out of firms that could fail here?
DAVIDSON: No. I mean, there's two more big, big investment banks on Wall Street. A few months ago, there were five. Now, there are two. There are plenty of big banks all over the country - all over the world, rather. I mean big, big banks. And let's keep in mind, most of these banks have done really dumb things. By their own account, they did really, really, really stupid risk assessment. They made really unhealthy investments in mostly, you know, the subprime housing area. We still don't know the full extent of those dumb decisions.
There's a huge amount of uncertainty here. So, you know, I keep imagining, oh, OK, now we're on the healing phase of the cycle. But, you know, things like this keep happening. The ugliness is deeply baked into the global financial system. So we're just not quite clear on how far we are into this thing.
INSKEEP: Adam, thanks very much.
DAVIDSON: Thank you, Steve.
INSKEEP: NPR's Adam Davidson bringing us up to date on one of the big developments of the weekend, and that's that Lehman Brothers was not bought or taken over, was not saved, and was forced to file for bankruptcy.