It may seem like a long time ago, but it was only on Monday of last week (Sept. 15) that Lehman Brothers filed for bankruptcy; the equally big news was that the Federal Reserve declined to bail Lehman out.
I've read several details regarding Lehman's demise and learned some interesting facts. The bankruptcy filing was "pre-dawn" on the 15th, according to Bloomberg. The filing document is available in PDF form on the internet: it names Lehman's largest unsecured creditors, and the dollar amounts of their claims.
"Citibank, N.A., as indenture trustee" is listed as Lehman's largest unsecured creditor, with a claim of "Approximately $138 billion" in "Bond Debt."
Following Lehman's filing, J.P. Morgan transferred $138 billion in two payments to Lehman Brothers -- $87 billion on Sept. 15th and $51 billion on Sept. 16th. Bloomberg reported that the transfer of funds was "to keep financial markets stable," and to settle Lehman's "securities transactions with customers...and clearance parties, according the [court] filing."
After these transfers, also according to Bloomberg, the Federal Reserve Bank of New York made two subsequent payments to J.P. Morgan: $87 billion on Sept. 15th and $51 billion on Sept. 16th, for a total of $138 billion.
Lehman's bankruptcy court filing said that J.P. Morgan's $138 billion transfer to Lehman was "At the request of... the Federal Reserve Bank of New York." I have not been able to find an explanation -- in media reports or from the Federal Reserve -- of why J.P. Morgan needed to be a party to the $138 billion that Lehman received, and that the Fed transferred.
I'm also unable to find an announcement from the Fed that it was making the transfer.
One could infer that J.P. Morgan was used as a third party in order to avoid the perception that, despite statements regarding not bailing out Lehman, the Fed was indeed assuming $138 billion in obligations that were in default upon Lehman's bankruptcy.
Once could also infer that such an action by the Fed amounted to a $138 billion bailout of Citibank, which was the dollar value of the Lehman-issued bonds Citibank held. Citibank issued a Sept. 15 press release saying that its "role in this issue is administrative in nature and does represent exposure for Citi to Lehman." The statement did not identify who or what owned the $138 billion in bonds.
I hope that more facts become available showing that the inferences are mistaken, and I invite journalists and others to bring any such relevant facts to light.
(For more information, please read: An Update on the $138 Billion -- and the Inferences.)