Another Bailout in the works? Or, Moral Hazard 101

“How can we bailout Lehman without the public knowing about it?”  That’s about the gist of the current thinking behind Bernanke & Paulson’s latest scheming to rescue the next investment bank on the chopping block, Lehman Brothers.

Paulson is publicly making comment that ‘no Federal monies’ will be involved as the Treasury is seeking to orchestrate a buyout. Yeah, I’ll believe that from a guy who just weeks ago told congress that he would not be using the authority to bailout Fannie Mae and Freddie Mac, but who yesterday told some of the P.O.’ed lawmakers upset with the bailout that Congress has no authority to modify the terms of the largest taxpayer backed bailout in U.S. history.

As we wait for news on how the Gub’ment plans to orchestrate this wall street rescue, please bare in mind that Lehman is currently under Congressional investigation for allowing foreign investors to escape U.S. tax liabilities, and that the U.S. largest savings and loan institution, Washington Mutual, is hot on the heels of Lehman as the next ‘too big to fail’ institution about to bite the farm.

Update: The bailout that’s not a bailout.. so Lehman will go bankrupt but the FED will now except collateral that has junk status in exchange for cash at the discount window.