Bernanke defends Bear Stearns rescue
4/3/2008 WASHINGTON "Given the 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,"
Bernanke told the Senate Banking Committee.
Bernanke was the top witness at a hearing called to examine
whether the Fed was justified in providing up to $30 billion to
facilitate the sale of Bear Stearns Cos. to JP Morgan Chase & Co.
The nation's fifth largest investment bank became the biggest
victim of a severe credit crunch that has roiled markets since last
August and made it harder for consumers and businesses to get
credit.
Democrats on the Senate Banking Committee said they wanted to
find out what pressures the Bush administration had brought to
close the sale and whether big investment banks were getting
preferential treatment over millions of Americans in danger of
defaulting on their mortgages.
"Was this a justified rescue to prevent a systemic collapse of
financial markets or a $30 billion taxpayer bailout for a Wall
Street firm while people on Main Street struggle to pay their
mortgages?" Senate Banking Committee Chairman Christopher Dodd
asked at the beginning of the hearing.
Dodd said he planned to focus on a period of 96 hours including
the weekend of March 15-16, in which the federal government took
unprecedented actions to "stabilize our markets, to infuse them
with liquidity and to prevent additional firms from being swept
under the riptide of panic that threatened to have taken hold of
our markets."
Bernanke said that if Bear Stearns had been allowed to fail, it
would have led to a "chaotic unwinding" of Bearn Stearns
investments held by individuals and other financial institutions.
"Moreover, the adverse impact of a default 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.