Feds Hold Emergency Meeting to Discuss Lehman Brothers

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The Federal Reserve Bank of New York held an emergency meeting Friday night with top Washington policymakers and major financial institutions to discuss the future of Lehman Brothers.

The meeting, which was attended by Treasury Secretary Henry Paulson, was held at the offices of New York Federal Reserve Bank president Timothy Geithner. The meeting was confirmed by Fed spokeswoman Michelle Smith.

Smith refused to disclose what financial institutions participated in the meeting or whether the group had reached any conclusion over how to resolve the crisis facing Lehman Brothers.

She said that in addition to Paulson and Geithner, Christopher Cox, the chairman of the Securities and Exchange Commission, was in attendance for the discussions.

The private sector participants were described by Smith only as "senior representatives of major financial institutions."

However, the Wall Street Journal reported on its website that this group included Morgan Stanley chief executive John Mack and Merrill Lynch chief executive John Thain among others.

Earlier in the day a person familiar with Paulson's thinking said that the treasury secretary was opposed to the use of any government money to bail Lehman Brothers out of its financial difficulties.

Lehman Brothers, the U.S.'s No. 4 investment bank, was racing to find a buyer two days after it laid out a restructuring plan it said would raise badly needed money it lost on bad bets in real estate holdings.

The person, who spoke on condition of anonymity because of the sensitivity of negotiations, said Paulson believes the Lehman situation is different in two critical aspects from the government-assisted rescue of Bear Stearns back in March.

This person said that Paulson believed that financial markets have been aware for some time of the difficulties facing Lehman and have had time to prepare and the Fed is now allowing investment banks in need of emergency loans to borrow directly from the Fed just as commercial banks can do.