Why did the Fed hold rates when markets priced a cut, lend \$85 billion to AIG, and let Lehman fail?
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The priced-in cut that never came
Record what fed funds futures priced (a 25-50 bp cut), what the Fed did instead (held at 2%), and the lesson that market prices carry information but are not a crystal ball.
The AIG loan and forced selling
Write down the $85 billion facility to AIG, a non-bank, and trace the chain from AIG failing to pension funds bound to investment-grade assets all selling the same paper at once.
Availability of credit versus cost of funds
State the distinction between a crisis of borrowing cost and one of credit availability, and list the tools the video names for the latter: direct lending and the discount window.
Costs of financial distress: the Lehman break-up
Describe Barclays cherry-picking Lehman's US operations and paying retention bonuses on top of the purchase price, and state the general result that distress creates payments that would otherwise never be made.