The American Spectator

p> BAILED OUT br> Re: Philip Klein’s The Fed Panics : /p> p>Hey, how bout cutting oil, cigarette, social security, etc., taxes AND gov’t spending in honor of the New Forgotten Man? br> — Scott Horn br> Akron, Ohio /p>

I sympathize with the theme of Philip Klein’s article, but the alternatives might be even worse. Britain just had a run on a mortgage bank called Northern Rock — now usually referred to as Northern Wreck. The Bank of England had an opportunity to provide temporary loans to keep the bank going while it was taken over by a competitor - exactly the same as the Federal Reserve has done with Bear Stearns. Unlike the Federal Reserve the Bank of England baulked at the idea, for the same reasons as Phillip Klein outlines. Northern Rock’s financial position became impossible, depositors were lining up for blocks to withdraw their funds, the British Government provided loan guarantees to persuade them to keep their accounts open and the Government ended up provided far more in loans than the original buyout would have required. The Government dithered appallingly and allowed the mess to drag on for six months until it took the only possible action left and nationalized the bank (after committing around $100 billion in loans and guarantees to keep it afloat). Now the Government owns a bank that is probably ruined for ever and has to try and sell it in a market that is far worse and will probably decline even further.

p>Unlike the Bank of England and the British government, the Federal Reserve acted with remarkable speed to get a possible financial catastrophe off their hands and into the arms of a firm that could manage it better. Comparing Bear Stearns and Northern Rock makes the Federal Reserve look a lot better than it might otherwise. The Bank of England and the British government look hopelessly incompetent compared to the Federal Reserve. The Bear Stearns business still leaves a lot to be desired, but it could have been far, far worse. If you have to choose two evils, it is always better to choose the lesser one and that is what the Federal Reserve did. br> — Christopher Holland