The American Spectator

Reader Mail

(Page 4 of 8)

As I read Philip Klein and Paul Krugman's articles about the Fed's recent actions viz Bear Stearns and the wider financial markets, I was impressed by how similar their assessments are, to a point. Both appear to agree on the following:

Bear Stearns deserved to be allowed to fail because of its economic practices and to teach Wall Street not to expect governmental bailouts.

Nevertheless, the Fed aggressively intruded into the market to save Bear from bankruptcy.

Consequently, taxpayers could be on the hook for millions of dollars because of the Fed's actions.

And, J.P. Morgan is the primary beneficiary of this corporate welfare.

Furthermore, the Fed cut a key interest rate and is likely to do so again to shield the market from the consequences of costly mistakes.

What accounts for the Fed's actions? According to Mr. Klein, "In the aftermath of the Sept. 11 attacks, then Fed Chairman Alan Greenspan was eager to avoid a recession. While at first it may have been prudent to cut interest rates, Greenspan went on one of the most aggressive rate-cutting campaigns in the history of the Fed, and mortgage rates tumbled to historic lows." Mr. Krugman elaborates on this when he writes, "Between 2002 and 2007, false beliefs in the private sector -- the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe -- led to an epidemic of bad lending." TV commentator Larry Kudlow referred to this time as "the greatest story never told."

p>Klein and Krugman differ on one important point. Mr. Klein believes the government should have let the chips fall where they may. Of course, he has no way of knowing what the consequences of that inaction would be. Neither did the Fed and they were unwilling to take the risk. Mr. Krugman writes: "Meanwhile, false beliefs in the political arena -- the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing -- led Washington to ignore the warning signs." Far too late, in my estimation, Ben Bernanke and Secretary Henry Paulson admitted that with proper government regulations and oversight we could have avoided this crisis. br> -- Mike Roush br> North Carolina /p>

Granted, I am not an economist nor do I play one on TV; but I just don't see this as a bailout of Bear Stearns. After last weekend Bear Stearns is no more. Its stock is worthless and its shareholders have lost everything they invested in the bank. Seven thousand employees of Bear Stearns will be without jobs.

Now, can you please tell me again how this was a bailout? Didn't the Federal Reserve assist in a buyout by helping JP Morgan Chase buy Bear Stearns at $2.36/share? That's a bargain basement price for a company whose stock sold for more than $170/per share a couple years ago.

p>I think Mr. Klein may be pulling his shirt over his head and running in circles at this moment. Our national financial situation is precarious and not great, but we are not going over the falls in a barrel. Please calm down.

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