Bernanke says Fed did not 'bail out' Bear Stearns

Discussion in 'Wall St. News' started by S2007S, Apr 2, 2008.

  1. S2007S



    I guess he is right since the $30 BILLION came from taxpayers....

    wonder how much more taxpayers money they will front to help the financial crisis....

    Bernanke says Fed did not 'bail out' Bear Stearns

    by Rob Lever 15 minutes ago

    WASHINGTON, April 2, 2008 (AFP) - Federal Reserve chairman Ben Bernanke said Wednesday the central bank "did not bail out Bear Stearns" but aided a rescue of the Wall Street firm "to preserve the integrity" of the financial system.

    Bernanke, appearing before the Joint Economic Committee of Congress, said the Fed confronted "difficult questions of public policy" as it faced a potential meltdown of one the largest US investment banks.

    He said the Fed supported the buyout by JPMorgan Chase to avert a "chaotic" situation that could have triggered broad economic impacts.

    "We did what we did because we felt it was necessary to preserve the integrity and viability of the American financial system, which in turn is critical for the health of the economy," Bernanke said.

    The Fed chief was facing his first questions on Capitol Hill since the spectacular meltdown of Bear Stearns that prompted US authorities to step in and support a buyout with loan guarantees by the central bank.

    "We did not bail out Bear Stearns. Bear Stearns' shareholders took a very significant loss. An 85-year-old company lost its independence and became acquired by another firm," Bernanke said.

    "I don't think any company is interested in repeating the experience of Bear Stearns."

    In his prepared remarks, Bernanke said the fact that Bear Stearns was connected to so many parts of the financial system meant that a failure could have meant a calamity.

    "With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence," Bernanke said.

    "Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.

    "Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability."

    Bernanke said the rescue was organized after Bear Stearns warned the Fed on March 13 "that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available."

    He said the Fed, which does not oversee investment firms, did not have advance knowledge of the Bear Stearns crisis.

    "We were not informed of the imminence of the situation until about 24 hours before the event -- probably on Thursday with the announcement of their information that they were going to be likely in default on Friday morning," he said. "And it was at that time that we began our emergency response."

    Bernanke acknowledged the rescue was an extraordinary event. "I certainly hope, and do not expect, a repeat of this episode."

    "Normally, the market sorts out which companies survive and which fail, and that is as it should be," he said.

    "However, the issues raised here extended well beyond the fate of one company. Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets."

    He said the Fed acted "in close consultation with the Treasury Department," to provide funding to Bear Stearns through JPMorgan Chase.

    The action was organized, he said, "to prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy."

    Bernanke's comments came a day after the Fed formally approved JPMorgan Chase's takeover of Bear Stearns.

    JPMorgan Chase hiked its offer for Bear Stearns on March 24 to 10 dollars per share, or over one billion dollars, quintupling a fire-sale price agreed a week earlier for the distressed investment bank.

    The Federal Reserve has pledged 29 billion dollars of taxpayer money to finance the deal in return for 30 billion dollars' worth of Bear Stearns assets, including ailing mortgage-backed securities.
  2. Can someone please explain how this is taxpayer's money? They were never collected in taxes. The introduction of this $29 billion devalues all holders of American usd or bonds. Which includes taxpayers and non-taxpayers such as the chinese.
  3. Question:
    The cash given to JPM was taxpayer money, but the Fed can claim not to have bailed them out b/c they are supposedly profiting 1b in the way of assets. The issue is the assets they received are trash.
  4. Between bailing out BSC and letting them file bankruptcy due to illiquidity the US taxpayer should be feeling grateful for Bernanke's actions as he saved them a lot of sleepless nights, at least for the time being.
  5. GTS


    On the flip side, if the fed had done nothing and let BSC fail then everyone would be complaining that the gov't didn't do enough... sometimes you just can't win.
  6. In all honesty, I'm not satisfied by the answer. The money the Fed prints was never collected from Taxpayers. So how could it be considered taxpayer's money?

    I'm not tring to be a smart-ass, but I think a distinction has to be made. Where is the outrage then of the Fed lending so-called taxpayers' money on interest free loans to the wealthiest corporations and banks in America. Why not have the fed give money back to the taxpayer if it is indeed hoarding taxpayers' money.

    That's because it's not taxpayers' money but new money which is inflationary and devalues anyone holding dollars or bonds right now.
  7. Taking your money - or it's value - one way or another.

    A tax by any other name....
  8. If you don't think the FUD bailed out BSC you I bet the ranch are not only a losing trader (you are huh!) and an idiot. George Soros just said on cnbc interview w/ maria Cuntromo that FUD bailed out BSC. But he is only a billionare who made his fortune in the markets so I suppose he doesn;t know.
  9. bailed out?

    BSC is gone. just need to settle what measly amt the share holders get.

    if the FED didn't move on this there would have been a serious financial disaster due to all the counter party risk with unknown billions of derivatives with numerous investment banks. this would have been global.

    Why do you think the FED acted on a Sunday? they were absolutely petrified what would have happened Monday if Bear imploded. this is the first time in 3 decades that they did something like this on a Sunday.

    I have been very critical of the FED for a few years now, but this time they did the correct thing. Intervening constantly with lowering rates is the wrong thing.
  10. sprstpd


    This is exactly the kind of thinking that will never allow us to come to a conclusion to this mess.
    #10     Apr 2, 2008