How did the Fed defend its empowerment to bail out Bear Sterns from collapse?
*Financial Times, by Krishna Guha, April 3, 2008:
"Bernanke warns US economy could shrink
The US economy will not grow much if at all during the first half of
this year and 'could even contract slightly,' Ben Bernanke said on
Wednesday, admitting for the first time that a 'recession is possible.'
The chairman of the Federal Reserve said its recent actions – big
interest rate cuts and emergency measures to support market liquidity –
'appear to have helped stabilise the situation' in financial markets
'somewhat.' But he said those markets remained under 'considerable
stress.'
Amid tough questioning from Democrats, Mr Bernanke defended the
decision to intervene to save investment bank Bear Stearns from
collapse. The central bank’s rescue of Bear raised 'difficult
questions,' he said. But the damage caused by a default 'could have
been severe and extremely difficult to contain' with fallout for the
real economy as well as the financial system.
He told lawmakers that the Fed’s emergency loan to Bear Stearns
followed a warning by the company on March 13 that it would have to
file for Chapter 11 bankruptcy the following day."
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