Did the Fed Prevent a Financial Chernobyl?

There are two useful but frustrating articles addressing different aspects of the extraordinary measures implemented by the Federal Reserve in the last ten days, in particular the bailout of Bear Stearns.

A New York Times article, "What Created This Monster," is very much worth reading despite its shortcomings. It attempts to say how we got to where we are today, but lacking a clear problem definition (are the markets in trouble due to excessive leverage? Overly complex instruments? Lack of transparency? Poorly thought and inadequate regulations? Those negative real interest rates under Greenspan?) it comes off being unfocused. However, it interviews a lot of Big Names and have some fascinating moments. My fave is this one:

Two months before he resigned as chief executive of Citigroup last year amid nearly $20 billion in write-downs, Charles O. Prince III sat down in Washington with Representative Barney Frank, the chairman of the House Financial Services Committee. Among the topics they discussed were investment vehicles that allowed Citigroup and other banks to keep billions of dollars in potential liabilities off of their balance sheets — and away from the scrutiny of investors and analysts.

“Why aren’t they on your balance sheet?” asked Mr. Frank, Democrat of Massachusetts. The congressman recalled that Mr. Prince said doing so would have put Citigroup at a disadvantage with Wall Street investment banks that were more loosely regulated and were allowed to take far greater risks. (A spokeswoman for Mr. Prince confirmed the conversation.)