Paulson says Lehman bailout was never an option

Treasury Secretary Henry Paulson says the American people can remain confident in the "soundness and resilience in the American financial system."

Briefing reporters at the White House, Paulson said he "never once" considered it would be appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers. The nation's fourth largest investment bank filed for bankruptcy protection earlier Monday.

Starting Friday, Paulson participated in three tense days of negotiations at the New York Federal Reserve Bank in which he held firm to the position that the federal government would not step in and supply any money to resolve the crisis at Lehman.

Faced with the prospect of no government help in dealing with Lehman's huge losses on its mortgage holdings, other financial firms lost interest in trying to buy the venerable firm. That forced New York-based Lehman to file for bankruptcy protection, making it the largest bankruptcy in history in terms of assets, surpassing the failures at Worldcom and Enron earlier in the decade.

Paulson explained his decision by telling White House reporters he did not "take lightly" any decision to put taxpayer money at risk to prop up a private company.

"Moral hazard is something I don't take lightly," Paulson said, referring to the belief that when the government steps in to rescue a private company it encourages other companies to engage in risky behavior.

"I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers," Paulson said.