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Wednesday, April 02, 2008

Bernanke on the Rescue of Bear Stearns

Fed Chairman Bernanke testified before the US Joint Congressional Economic Committee that they had little choice but to rescue Bear Stearns:

Bernanke said that because the financial system is so interconnected, the sudden failure of Bear Stearns could have led to a "chaotic unwinding of positions" that could have shaken already fragile investor confidence and further undermined the economy.

A disorderly collapse could also have cast doubt on the financial positions of other firms that did business with Bear, he added.

"Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," Bernanke said.

"Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability."

My thoughts on that Monday, when the world came close to disaster is quite clear. I agree with the position of the Fed. Had they not acted would have sent markets spiraling out of control. It may or may not have been the nail in the coffin but it could have been the catalyst to an economic crisis that would have been far more difficult to contain, much less, untangle.


DJB Rizalist said...

hehe but he's thrown the markets into a slump with the "R" word, long and deep.

Cocoy said...

too true. heheh. anyway, the market's been crazy the past few months. roller-coaster ride. it is still shaving off some fat, i guess.

i think it is a case of how fast do you want to remove the band-aid? personally, i'd rip it out fast and get it done. i think some people are just plain afraid so they want to go slow in removing it.

there is a downturn happening. does it go deep "r" or not? fundamentally, i don't think it matters. crisis mode's got to be where you are now.

everyone's in storm-shelter mode or getting there. some of the moves of US companies like Apple and Phoenix Technologies are reinvesting in themselves for when the storm's over.

individually there people like Lindsay Campbell who've blogged about the stimulus package: and i think she has the right idea.

Were some laws broken because of the subprime mess? will there be a need for new regulation to protect against this from ever happening? was it a case of excessive greed? i don't know. guess, that's part of the cure too.