Fed Gives Glimpse Into Stearns Takeover

Government Took Rare Action To Save Investment Back To Prevent Panic, Documents Show

(AP)  The Federal Reserve was scrambling to prevent a "contagion" from infecting the nation's financial system when it took unprecedented actions to back a Bear Stearns rescue package and provide emergency loans to big Wall Street firms.

The Federal Reserve released documents Friday providing insights into its private deliberations in March that led to those controversial decisions. The Fed's actions came at a time when credit and financial problems were intensifying, threatening to paralyze the entire financial system and plunge the economy into a recession.

Given the fragile conditions of the financial markets at that time, the Fed said it felt compelled to intervene because an "immediate failure" of Bear Stearns would bring about an "expected contagion."

The Fed initially moved on March 14 to provide temporary emergency financing to investment bank Bear Stearns Cos. through an arrangement with JP Morgan Chase & Co. Two days later as the investment bank teetered on the brink of bankruptcy, the Fed agreed to provide backing for up to $30 billion of a deal where JP Morgan would take over the troubled company.

That same day - March 16 - the Fed said it would allow big Wall Street firms to go directly to the Fed for emergency loans, a privilege only commercial banks had enjoyed. It was the broadest use of the Fed's lending powers since the 1930s.

The Fed's decision to take this action was "based on recent, rapidly changing developments," the documents said. "These developments demonstrated that there had been impairment of a broad range of financial markets" that Wall Street firms go to for financing.

The Fed's financial lifeline in JP Morgan's takeover of Bear Stearns was subsequently changed to $29 billion and - most recently - to $28.82 billion.

The documents said that the Fed, in discussions on March 16, believed that the takeover - and its involvement in helping to bring it about - was "necessary to avoid serious disruptions to financial markets." The Fed said that "many potential investors" had been invited to back Bear Stearns but the investment firm determined that JP Morgan was "the most suitable bidder."

[brianbwb-2009]

"Let the markets crash I don''''t care, just don''''t make me pay for anything that will not benifit me." Posted by killtheliars

Vote for McSame, and you can be assured that the Wall St. worship, as practiced by "trickle downers" ever since Reagan, will not only continue, but will get worse, as every other business will feel they can cook books, lie and steal, and build huge houses of cards, then when the inevitable time for rekoning comes, your dollars will be devalued to bail them out.

[brianbwb-2009]

"Let the markets crash I don''''t care, just don''''t make me pay for anything that will not benifit me." Posted by killtheliars

Vote for McSame, and you can be assured that the Wall St. worship, as practiced by "trickle downers" ever since Reagan, will not only continue, but will get worse, as every other business will feel they can cook books, lie and steal, and build huge houses of cards, then when the inevitable time for rekoning comes, your dollars will be devalued to bail them out.

[marshall_nee]

Somewhere, Ken Lay is laughing his arse off.

Posted by FeelFree4U at 12:39 PM : Jun 27, 2008

In Paraguay no doubt, waiting for shrub to join up.

[killtheliars]

I don''t have many investments in stocks because I don''t really trust wall street. I do have a number of real estate assets and a good deal of cash so this really pisses me off. Why should my dollar be devalued to save wall street, let them all go under for all I care, While I might not like it I could still live comfortably without my 401K.
Just because others have their entire furures tied inot wall street those of us who knew better should not have to pay to finance the future of others. Let the markets crash I don''t care, just don''t make me pay for anything that will not benifit me.

[feelfree4u]

Somewhere, Ken Lay is laughing his arse off.