The Federal Reserve’s actions to bail out Bear Stearns have far reaching implications for all investors and taxpayers. Two well-respected columnists at the New York Times ? business reporter Gretchen Morgenson and Op-Ed columnist and Princeton economist Paul Krugman ? have strongly criticized the Federal Reserve’s decision to bail out Bear Stearns.
Morgenson, whose column appeared on Sunday morning March 16 before the announcement of the purchase of Bear Stearns by JP Morgan at a fire sale price of $2 per share, wrote of the possible consequences of living in a world where regulators will rescue “even the financial institutions whose recklessness and greed helped create the titanic credit mess….” She predicted that such consequences could include a weaker currency, rampant inflation, a continuation of the year-long slow bleed at banks and brokerages firms, or all of the above.
By agreeing to a 28-day credit line to Bear Stearns on Friday, the Federal Reserve Bank of New York all but admitted that its doctrine is “Rescues ‘R’ Us” and that no sizable firms with a book of mortgage securities or loans out to mortgage issuers could or would be allowed to fail.