watch the Frontline documentary Inside the Meltdown. As you watch the documentary, pay attention to the rationale for bailing out Bear Stearns and AIG, but not bailing out Lehman Brothers. Economists are not in agreement to this day as to whether the bailouts should have occurred. The discussion boils down to which rationale is the lesser of two evils. If you were Hank Paulson or Ben Bernanke, would you have supported the bailout? Limit your discussion to systemic risk and moral hazard. http://www.pbs.org/wgbh/pages/frontline/meltdown/view/ Solution The Fed was concerned in bailing out the Bear Sterns and AIG and not Lehman Brothers since the AIG and Bear Sterns have already established themself and their fallout could possible harm many other foreign national companies associated with it. Lehman Brothers progress was pretty much predictable and it was evident that they would fail in the markets. Lehman had the problem of solvency where as the other banks had the problem of liquidity. The Fed.