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.
More TOP STORIES News