Bear Stearns deal called necessary
Head of government agencies and investment banks went before a Senate committee to defend the Fed rescue of Bear Stearns, saying greater economic harm would have resulted if action weren't taken. Bob Moon reports.
Federal Reserve Chairman Ben Bernanke testifies while SEC Chairman Christopher Cox, Under Secretary of Treasury for Finance Robert Steele, and President of the Federal Reserve Bank of New York Timothy Geithner listen during the Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill April 3, 2008. (Mark Wilson/Getty Images)
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KAI RYSSDAL: The long green witness table in front of the Senate Banking Committee was crowded today. Left to right you had the chairman of the Federal Reserve, the chairman of the SEC, an undersecretary of the Treasury, and the president of the New York Fed. In fact, it was too crowded, because this guy had to wait until panel number two.
Jamie Dimon: My name is Jamie Dimon. I am the chairman and chief executive officer of JPMorgan Chase.
Dimon echoed what every other witness said today -- that if he hadn't snapped up Bear Stearns with some help from the Fed it would have been nothing less than the financial apocalypse.
DIMON: The key point in my mind is this: Bear Stearns would have failed without this effort. And the consequences could have been disastrous.
So we asked Marketplace's Bob Moon to do a little "what if."
BOB MOON: Noted investment guru Jim Rogers was furious as he spoke to Marketplace when news of the Bear Stearns rescue first broke.
JIM ROGERS: You're telling me that people who make mistakes aren't supposed to go bankrupt? That is not capitalism -- that's socialism for the rich.
But today, the head of the New York Federal Reserve Bank Timothy Geithner, who helped put the deal together, insisted it wasn't just wealthy investors the government had to protect:
TIMOTHY GEITHNER: A failure to act would have added to the risk that Americans would face lower incomes, lower home values, higher borrowing costs for housing, education, other living expenses, lower retirement savings and rising unemployment.
Critics have been arguing that meddling in the market will make higher interest rates and inflation inevitable for years to come. Again, Jim Rogers:
ROGERS: There's nothing wrong with bankruptcy, there's nothing wrong with financial collapse. It cleans out the system and you can start over again.
Wall Street historian Charles Geisst says in past financial panics, one bloodletting has usually been enough for the market to right itself. But he's convinced things are very different now:
CHARLES GEISST: This problem is so systemic and endemic, it stretches everywhere. To let Bear Stearns go and then eventually have had to come in and bail someone else out who might have been a little bit larger, would have been seen as favoritism or political, and it just wouldn't have made any sense.
Treasury Undersecretary Robert Steel called Bear Stearns a special case, but Alabama Republican Senator Richard Shelby wasn't convinced:
RICHARD SHELBY: Well we can't send the signal, if you take the risk and you're too big to fail, the Fed's going to come running, and the Treasury's going to back it, and the taxpayer's going to be on the hook -- can we?
ROBERT STEEL: No sir.
Steel and other officials conceded, though, there could be further failures of banks deemed too big to fail.
I'm Bob Moon for Marketplace.
