Monday, March 16, 2009

Bear Stearns: The Fed's Original 'Systemic Risk' Sin -

One year ago.

Bear Stearns: The Fed's Original 'Systemic Risk' Sin -
"...the Federal Reserve saved Bear Stearns from bankruptcy. The central bank's agreement to invest $30 billion (later reduced to $29 billion) in Bear's opaque securities greased a sale of the firm to J.P. Morgan Chase. For the first time since the 1930s, the federal government was putting taxpayers at risk to rescue a Wall Street investment bank. To this day, the government has not explained precisely why....

Was there a formula that regulators used to measure systemic risk? .... Still, more data might help explain how the also-ran among Wall Street's major banks could possibly have dictated the fate of the American economy.

Oddly, given that this is a question of finance, government explanations following the Bear deal involved lots of adjectives and very little math....Fed Chairman Ben Bernanke described "fragile" financial conditions. Timothy Geithner, New York Fed president at the time, also saw "fragile" conditions, as well as a "fragile" economic situation and a "fragile time in global financial markets." Mr. Bernanke, when describing the "interconnectedness" of Bear Stearns, said that regulators decided to act "given the weakness and the fragility of many markets."

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