The E-Mail That Should Have Saved Lehman Brothers

The Wall Street Journal reports that, contrary to what former Lehman executives would have you believe, the New York Fed did give the firm the opportunity to borrow from the central bank on emergency terms on September 14th - the day Lehman filed for bankruptcy - provided it had the collateral.

The Fed had agreed to relax its lending criteria to include investment banks who satisfied certain collateral requirements, as it was concerned that the whole of Wall Street, and then the US economy as a whole, would meltdown without this move. Lehman officials, and Dick Fuld, the firm's former CEO, have always contended that Lehman was the only firm precluded from accessing the discount window.

Not so, says Tom Baxter, a general counsel at the New York Fed, who told the Financial Crisis Inquiry Commission earlier this week that an e-mail was sent to Lehman, before it filed, outlining the terms for such borrowing.

The offer to Lehman is said to have been put in writing, as Fed officials were concerned that the contents wouldn't get communicated properly during the events of 'that frantic weekend'.

Perhaps someone forgot to press the 'send' button, however, as no-one at Lehman appears to want to own up to seeing it.

Here's the e-mail:


NEW YORK, N.Y. 10045-0001

TELEPHONE 212-720-6599
FACSIMILE 212-720-1794


September 14,2008


Mr. Marco Brandimarte
Assistant Vice President
JPMorgan Chase Bank, N.A.
3 Chase Metrotech Center, 5th Floor
Brooklyn, NY 11245-0001

Mr. Robert Guglielmo
Senior Vice President
Lehman Brothers Inc.
Capital Markets Contracts - Legal
1271 Avenue of the Americas, 43rd Floor
New York, NY 10020-1300

Dear Messrs. Brandimarte and Guglielmo:

Reference is hereby made to (l) the Master Open Market Agreement, dated as of October 21, 1996, as amended, supplemented or modified from time to time ("MaMA") between Lehman Brothers Inc. ("Dealer") and the Federal Reserve Bank of New York ("FRBNY"), (2) the Custodial Undertaking In Connection with Master Open Market Agreement, dated as of October 1, 1999, as amended, supplemented or modified from time to time ("MaMA Tri-Party Agreement") among Dealer, FRBNY and JPMorgan Chase Bank, N.A. (formerly, The Chase Manhattan Bank) and (3) the Legal Terms and Conditions for Primary Dealer Credit Facility, dated March 16,2008 ("Terms and Conditions") and the related Acknowledgment and Agreement to the Terms and Conditions executed by Dealer.

As discussed with your firms, FRBNY will be amending the Schedules of Eligible Securities with respect to any Repurchase Transaction (as defined in the MaMA) undertaken by Dealer and FRBNY pursuant to the Primary Dealer Credit Facility ("PDCF") under the MaMA and the Terms and Conditions. Please find attached to this letter a copy of the revised Schedules of Eligible Securities that should be substituted for the Schedules of Eligible Securities to Custodial Undertaking in Connection with Master Open.Market Agreement (PDCF) that currently form part of the MOMA Tri-Party Agreement. The revised Schedules attached hereto shall be effective as of the date of this letter.

Please have an authorized officer(s) acknowledge and accept this letter by executing three (3) copies of this letter, fax or email one executed copy to the attention of Catherine Kung, Federal Reserve Bank of New York, at (212) 720-6297 or, as applicable, and return the executed originals by same-day messenger to FRBNY as follows:

Attention: Catherine Kung
Federal Reserve Bank of New York
33 Liberty Street, 7th Floor
New York, NY 10045

Thank you for your prompt attention to this matter.

Christopher R. Burke
Assistant Vice President'

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