PI Original Adam Doster Friday March 21st, 2008, 12:26pm

Equity After The Bear Stearns Bailout

In a nice editorial published today, the State-Journal Record describes what's so frustrating about the Federal Reserve's bailout of Bear Stearns:

No doubt the 2 million people now in or facing foreclosure would like a net to catch them, too. But for those folks, ...

In a nice editorial published today, the State-Journal Record describes what's so frustrating about the Federal Reserve's bailout of Bear Stearns:

No doubt the 2 million people now in or facing foreclosure would like a net to catch them, too. But for those folks, President Bush last Friday criticized several plans before Congress, including a change to bankruptcy code that would not risk one tax cent. They, of course, get to pick themselves up by their unraveling bootstraps. Meanwhile, the administration moved heaven and earth to keep Bear Stearns out of bankruptcy because it was deemed “too big to fail.”

Of course, it's possible that if the Fed left Bear Stearns to reap what it sowed, instead of extending the bank more credit, it could have spurred greater financial instability. But what about equity for the taxpayers who are forced to foot the bill for a company that aggressively peddled what we now know were predatory loans? Harold Meyerson, in a thoughtful Washington Post column yesterday, asks the same question:

This solution doesn't look to be a great deal for the American public. It looks even worse when we recall that other governments -- including those of China, Abu Dhabi and Kuwait -- have also been bailing out our banks, through sovereign wealth funds, while getting shares in those companies in return. Can't the American people get as good a deal as the Chinese when our government bails out a major American bank? At minimum, some public representation on the bank's board?

There's no reason why not. But until needed financial regulation is put in place, it seems unlikely.

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