Everyone knows that it can be difficult to get by on your own in the modern global economy. Sometimes people need a helping hand from the government. According to the Wall Street Journal, that seems to have been the case lately with Lehman Brothers, the sickest of the major remaining investment banks. The article reports that the Fed investigated a rumor that Credit Suisse had pulled a line of credit from Lehman. When it determined that the rumor was false, the Fed quietly spread the word so that Lehman stock price and standing with other creditors would not be hurt. That was very nice of the Fed, but they don't provide this negative rumor correction service to most businesses. How many family restaurants would love to have the government put out the notice that the rumors of customers having gotten sick is not true? The fact is that most businesses are forced to surf the tide, benefiting from positive news and suffering from negative accounts, whether accurate or not. That is why it is so generous of Ben Bernanke's Fed to provide this negative rumor correction service for Lehman. The article should have made clear that Lehman is benefiting from this extraordinary form of government welfare. There may be a public interest in keeping Lehman afloat, but it is also reasonable for the public to demand some sort of quid pro quo for such generous assistance for private firms. For example, it could insist that no executives at Lehman receive more than $2 million a year in compensation. If the people running Lehman object to such conditions they would always have the option of dealing with negative rumors themselves, and lose access to the Fed's discount window and also any implicit commitment from the Fed to protect its creditors in the event of bankruptcy. Anyhow, the news reports should clearly identify major government interventions on behalf of private firms so that the public understands what it is at stake.
--Dean Baker
