In the question and answer period that followed Ben Bernanke’s speech today to the Economic Club of New York, the Federal Reserve chairman answered questions on why Lehman Brothers was allowed to fail, whether home prices are the root of the current problems and more. (Read the full transcript here.) Here are some highlights:

Bernanke speaks to the Economic Club. (Associated Press)

Lehman Failure

Lehman was not allowed to fail that in the sense there was some choice being made. There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation. The Federal Reserve’s ability to lend which was used in the Bear Stearns case, for example, requires that adequate collateral be posted so that we are not taking credit risk, we are lending against collateral. In this case that was impossible. There simply wasn’t enough collateral to support the lending. From the Treasury’s perspective, unlike the FDIC, deposit insurance fund, there were no funds, there was no option. We worked very hard over one of those famous weekends, with not only some potential acquirers of Lehman but we called together many of the leading CEOs of the private sector in New York to try to come to a solution. We didn’t find one, and therefore we were unable to do what we wanted very much to do, which was to prevent the failure of the company. Read more »

Associated Press

Sallie Krawcheck

Private banks like to say they put their clients first. But the resignation of Sallie Krawcheck from Citigroup shows that products often get first priority.

An article in today?s Wall Street Journal by my colleague David Enrich says Ms. Krawcheck–probably the highest-ranking woman on Wall Street–resigned over a spat with Citigroup CEO Vikram Pandit. Ms. Krawcheck was a fierce advocate for her clients, demanding the Citigroup reimburse wealthy clients who were sold bad investments like Citigroup’s in-house hedge funds and auction-rate securities.

“Ms. Krawcheck grew frustrated with Citigroup’s efforts to push the investment bank’s products through Smith Barney and the private bank, according to people familiar with the matter.”

Her opponents say Ms. Krawcheck was too provincial, focusing too narrowly on her own clients at the expense of the larger bank. And Citigroup has been better than many firms in reimbursing clients for their losses from hedge fund investments and purchases of auction-rate securities. At a time when Citigroup’s balance sheet is stretched, such measures are especially praiseworthy. Read more »

If you want to know what is really worrying the wealthy these days, consider the case of Bruce Smith.

The co-founders of medical-equipment maker Boston Scientific Corp. were forced to sell 31 million shares collectively through last Friday, according to the company. The shares had been pledged to “collateralize a loan,” the company said. Yesterday Peter Nicholas, one of the company’s co-founders, reported the sale of another $2.7 million in company stock, again from margin calls. Read more »

There is nothing like a good co-op board fight to unleash the resentments between Old and New Money.

An article by Andrea Estes in the Boston Globe describes a legal fight between John Walsh, the CEO of the Elizabeth Grady cosmetics chain, and an old money board of a co-op building in Boston’s Beacon Hill neighborhood.

Mr. Walsh, with a reported net worth of $100 million, wanted to buy a ground-floor unit at 68 Beacon Street, a posh, 16-unit co-op on the corner of Beacon and Charles streets for $700,000. The blue-blood board–led by Jonathan Winthrop, a descendant of the first Massachusetts governor, John Winthrop–turned him down. Mr. Walsh says he was snubbed because of his humble roots and Irish descent.

“I believe [the board members] are bigoted people,” he said in a deposition. “I think that they have ancient and archaic values. I think that they do not believe I’m of the same class of people that they are.”

Read more »

Gentrification has no greater enemy than the gentry.

A Boston Globe Sunday Magazine article by Kris Frieswick describes the philanthropic efforts of Wendy Schmidt in Nantucket. Mrs. Schmidt, wife of Google CEO and billionaire Eric Schmidt, fell in love with Nantucket in 1998 and decided to spend their summers there. It was, she says, the island’s sense of community and “character” that drew them.

But too many people like the Schmidts started moving in. Mrs. Schmidt bemoaned the loss of homey pharmacies, movie theaters and bus stations that were replaced by designer shops. So she has set to use her wealth to preserve parts of the town that the large wealth is destroying.

She bought a piece of land near the waterfront for $3.5 million and offered it to the town for a transportation hub. She is funding an Urban Land Institute Study of the downtown to help improve it. And she bought Mitchell’s book store, a local institution that was under threat because of rising land and rent costs (Bookstore-rescuing billionaires are becoming a trend..see my previous story about Sam Wyly and Explore Booksellers in Aspen).

Her goal is to protect or create businesses that that cater to the year-round locals, rather than the second-home-owning rich, who pay 75% of the town?s property taxes. It is the locals, she says, who give the place its charm.

Read more »

The world of global sourcing is even flatter and growing smaller by the day thanks to the advent of online marketplaces.

Since the global economic downturn set in, people have been asking me about its impact on e-commerce and Alibaba.com. While it is true that some businesses have become wary and have held back from international trade, it is equally true that many others are turning to more efficient and cost-effective ways of doing business—one of which is e-commerce.

Read more »