Lehman Revisionism Watch, Unexpected Loan Edition

Andrew Ross Sorkin seems to have caught Hank Paulson and Ben Bernanke out in a bit of a fib. They couldn't bailout Lehman, said first Paulson and then Bernanke, because Lehman didn't have the collateral needed to put up against a Fed loan.

But it turns out that the Fed did lend Lehman money: a whopping $87 billion, to be precise, on the Monday it collapsed. And the official (if anonymously-sourced) explanation makes almost zero sense:

People involved in the process said that the Fed only lent the money as part of "an orderly wind-down," which would have been different from lending money to an ongoing, or in this case, insolvent concern.

What seems to have happened is that while Lehman Brothers Holdings, the listed company, declared bankruptcy, its brokerage subsidiary, LBI New York, did not. The Fed lent some emergency money to LBI New York, and then that liability was transferred to Barclays when it bought the brokerage.

But the our-hands-were-tied argument, which was never very convincing to begin with, now looks completely shot to pieces. Paulson and Bernanke made a decision to let Lehman fail; if they really wanted to, they could have rescued it.