Fed Feared 'Contagion' If Bear Failed

Bernanke and crew felt they had to act, minutes show
By Kevin Spak,  Newser Staff
Posted Jun 27, 2008 1:30 PM CDT
Fed Feared 'Contagion' If Bear Failed
In an April 11, 2007, file photo Federal Reserve chairman Ben Bernanke gestures as he answers students' questions at New York University's law school in New York.   (AP Photo)

If the Fed hadn't taken the unprecedented step of helping bail out Bear Stearns, a sweeping "contagion" would have doomed the markets, its members say. In newly released minutes from its March 16 meeting, the Fed reasons that the “prominent position of Bear Stearns” left it no choice but to help JP Morgan's purchase, the Wall Street Journal reports. The minutes also reveal that JP Morgan was not the sole suitor—only the “most suitable,” and that fewer than five board members were in on the decision.

"The evidence available to the Board indicated that Bear Stearns would have difficulty meeting its repayment obligations the next business day," the minutes say. "Significant support, such as an acquisition of Bear Stearns or an immediate guarantee of its payment obligations, was necessary to avoid serious disruptions to financial markets." (More Bear Stearns stories.)

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