5. Financial journalist James Stewart notes that in contrast to its actions with respect to Lehman Brothers: "the 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." (a) (b) What does Stewart mean by "lending into continuing runs"? Why would central banks lend into runs at financial firms? Why is the issue of whether Bear Stearns and AIG held sufficient collateral important? Is setting this criteria important for the soundness of the financial system? Briefly explain. (c) How does your answer to part (b) relate to the Fed's decision not to lend to Lehman Brothers in the days before its bankruptcy?

5. Financial journalist James Stewart notes that in contrast to its actions with respect to Lehman Brothers: "the 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." (a) (b) What does Stewart mean by "lending into continuing runs"? Why would central banks lend into runs at financial firms? Why is the issue of whether Bear Stearns and AIG held sufficient collateral important? Is setting this criteria important for the soundness of the financial system? Briefly explain. (c) How does your answer to part (b) relate to the Fed's decision not to lend to Lehman Brothers in the days before its bankruptcy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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