Economist: Bailout better than collapse
Economist Carl Tannenbaum of Downers Grove, consultant and former chief economist for LaSalle Bank, says Friday's rescue of Bear Stearns Cos. will have little direct short-term effect on Chicago-area taxpayers and investors.
Is the average taxpayer going to be on the hook if Bear Stearns fails?
Absolutely not. The assistance is coming from the Federal Reserve, a semi-governmental agency. The Fed puts money into the system in good times and bad. The difference this time is that it did so for a single financial institution rather than a group of institutions.
What are the positives?
If the program to save Bear Stearns is successful, the cost to taxpayers will be very little and Bear Stearns will pay it back very quickly.
What if Bear Stearns fails?
An arranged marriage will likely be made with another financial institution. A buyer could take the good assets and the government, with bonds or some other structure, could take care of selling the rest.
Why is this bailout unusual?
The Fed needs five of seven votes for this kind of transaction but two Fed governors have yet to be confirmed by Congress and another was traveling. So they dug through the books and found this arcane provision that allows them to give support through a third party, in this case JPMorgan Chase.
Is Wall Street holding main street hostage for bailouts?
That's called the "Too big to let fail" doctrine. I think the Fed had to act decisively and did.