21 May 2008

Bear Stearns Too Big to Fail?

Antitrust Laws Required Intervention Long Before the Fed Bail Out

By Jonathan Macey 05/21/2008

Sometime during the week-end of March 14-15, the U.S. Federal Reserve decided the government of the United States could not permit the investment bank Bear Stearns to fail. Ben Bernanke, the Fed chairman, told the Senate Banking Committee that the bailout of Bear Stearns was necessary to protect the financial system and, ultimately, the entire economy.

Bear Stearns did not suddenly become an essential component of the U.S. economy the weekend it collapsed. Rather, the regulators at the Fed and the Treasury Dept. and the Security and Exchange Commission either hadn’t notice that Bear Stearns was too big to fail or were incapable or unwilling to do anything about the alleged systemic risks created by companies like Bear Stearns until they failed.

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