Question

[Related to the Making the​ Connection] Financial journalist James Stewart notes that in contrast to its actions with respect to Lehman​ Brothers, open double quotethe Fed did lend into continuing runs at both Bear Stearns and​ A.I.G., although officials argued then that those companies had adequate collateral to guarantee repayment.close double quote ​Source: James​ Stewart, open double quotePointing a Finger at the Fed in the Lehman ​Disaster,close double quote New York Times​, July​ 21, 2016. In open double quotelending into continuing runsclose double quote the Fed ▼ required provided additional ▼ liquidity for capital from banks in order to avoid ▼ buying selling ​longer-term assets at a ▼ gain loss ​, further ▼ boosting undermining investor confidence. Why is the issue of whether Bear Stearns and AIG held sufficient collateral important​ legally? A. Without sufficient​ collateral, they would be in default on their loans. B. The Fed can only make loans to firms provided that the loan being made is secured by adequate collateral. C. Without sufficient collateral they would be forced to declare bankruptcy. D. Holding sufficient capital does not have legal ramifications. All of the following might be reasons why the Fed did not lend to Lehman Brothers in the days before its​ bankruptcy, except: A. increasing moral hazard. B. Congressional criticism over the​ Fed's handling of Bear Stearns. C. provisions in the Federal Reserve Act. D. the failure of Lehman Brothers would have little impact on the economy.

Answer 1

Why is the issue of whether Bear Stearns and AIG held sufficient collateral important​ legally?

C. Without sufficient collateral they would be forced to declare bankruptcy

All of the following might be reasons why the Fed did not lend to Lehman Brothers in the days before its​ bankruptcy, except

D. the failure of Lehman Brothers would have little impact on the economy.