The Winners and Losers of the Wall Street Mess

Everyone assumed a government bailout would keep Lehman Brothers afloat. But the Secretary of Treasury was clear from the get go: no federal rescue, period. He was so determined to stand his ground that he spent Tuesday and Wednesday of last week calling Wall Street honchos to let them know where the buck stopped. Then at 6 p.m. on Friday Paulson summoned 30 of Wall Street's top power brokers to the Fed's offices in lower Manhattan and reinforced his position. His message: you have 48 hours to work things out among yourselves. Don't call me.

Expecting a government bailout was natural for Wall Street. Not only had the feds swooped in to rescue Bear Stearns in March, putting up a $30 billion credit line so that JPMorgan Chase would acquire it, but a mere week ago Paulson made one of the most stunning market interventions in years, taking control of the financially strapped Fannie Mae and Freddie Mac, whose demise would have wreaked havoc on the financial industry given their gigantic size. Together they own or guarantee more than $5.4 trillion in mortgage debt. But Paulson was getting tired of using taxpayer dollars to repair Wall Street's mistakes. He was determined to eliminate the moral hazard raised by government rescues. Amid mounting pressure, Paulson stuck to his guns, reassured by the belief the market had had plenty of time to adjust to Lehman's troubles. Although Lehman has filed for bankruptcy, Merrill was saved and the market hasn't imploded. Yet.

—By Kristina Dell