No Direct Fed Help for Lehman

I wrote yesterday about whether the Fed's PDCF, which is basically the discount window except for primary dealers (which include investment banks), would help save Lehman from a Bear Stearns-like rescue.

But NYT's Paul Krugman astutely points out that another lending facility open to investment banks, the Term Securities Lending Facility, which lends funds for a period of one month and most importantly accepts troubled assets as collateral, is calming markets (and I'd gather throwing Lehman a lifeline). The advantage of the TSLF over the PDCF is that it provides more anonymity for troubled banks.

Here is Bloomberg on the same:

Unlike the days leading up to the forced sale of Bear Stearns to JPMorgan Chase & Co., volatility in the money markets remains relatively muted. The difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread, rose 24 points in the past two weeks to 134 basis points, compared with an increase of 38 basis points to 160 basis points in the period leading up to Bear's failure.

Investors are showing less fear after the Fed set up special lending facilities following the Bear Stearns bailout, giving securities firms the same access to its cash as commercial banks. The ability to tap the Fed for funds means financial troubles at one investment bank are unlikely to bring down others.

And with the Fed and Treasury saying that they won't assist Lehman in the same way they helped Bear, we'll have to wait and see if these liquidity provisions will help Lehman survive if it can't find a buyer.

(Here's a very handy list of the Fed's lending facilities with links to data.)