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HighlyConfidential
New
York
Fed
Information
TimothyGeittmerINY/FRS07f15f200808:22AMToWilliamDudJey/NY/FRS@FRS,ChrisMcCurdyfNY/FRS@FRS,DonaldLKohnfBOARD/FRS@BOARD,KevinccMichaelSchetzel/NY/FRS@FRS
bee
Subject
Re:
LehmanGoodBankfBadBankideadiscussedlastnight
C1
History:
~
Thismessagehasbeenforwarded.
Pisaddsomething
011
howwedecide
wh<'ll
assetstotake.
Andweneed
11
broaderframework
in
whichtoplacethis.withhighproccdllfalhurdles.
From:
WilliamDudleySent:
07/1512008
08:17
AM
EDTTo:ChrisMcCurdy;DonaldKohn;KevinWarsh;LucindaBrickler;MegMcConnell;TerrenceChccki;TimothyGcilhncr;PatrickParkinson
Cc:
MichaelSchctzcl
Subjctl:
LehmanGoodBank/BadBankideadiscussedJaslnighl
JusttoputsomewordstowhatIwasproposinglastnight.VerymuchinthespiritofwhatwedidwithSear.
..
butbetterbecauselessdamagetofranchise,noforcedsale.
LehmanGoodBank/BadBankproposalAllthenumbersareroughguesses,butIwant
to
giveyouanexplicitexample
to
thinkabout.Separateintotwopans:MaidenLanetypevehicle:$60billion
of
illiquidassetsbackstopped
by$5
billionofLehmanequity.Fedguaranteesfinancingorfinancesthe$55billion.Lehmanownsthisvehicle,so
if
assets>liabilitiesuponwindup,accrue
to
Lehmanshareholders.CleanLehmanleft.$600billionofassets,$23billionofequity.Muchlessrisk,greaterliquiditycushion(don'thave
to
financeilliquidassets).Fedgetsequity
in
cleanLehman(whetherwarrantsorsomeotherform
of
equityTBD
in
compensationforbackstopfinancing
in
SPY).Protections
to
theFed.Firstlosspiece,netinterestmargin
on
SPY,andequity
in
cleanLehman.Whywewant
to
dothis.Takesilliquidassetsoffthemarket,reducesriskthatforcedsale
of
assetswillgeneratelossesthatmakeLehmaninsolvent.PreserveLehmanfranchjsevalue
as
agoingconcern.
No
negativeexternality
to
restoffinancialsystem.Moralhazardconsiderations
FRBNY
to
Exam.034332
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