Officials Testify on Bear Stearns Rescue

WASHINGTON -- In testimony before the Senate Banking Committee, top officials from the Federal Reserve, the Treasury Department and the Securities and Exchange Commission strongly defended their actions during the market crisis that forced the rescue of Bear Stearns, answering critics who have said that the government should have taken more aggressive steps months, or years, earlier to prevent the problems that are plaguing the financial markets, the New York Times reported.

A failure to save Bear Stearns, said Timothy F. Geithner, the president of the Federal Reserve Bank of New York, would have led to “a greater probability of widespread insolvencies, severe and protracted damage to the financial system and, ultimately, to the economy as a whole,” the Times reported.

The testimony disclosed that Treasury Secretary Henry M. Paulson Jr. had insisted that Bear be paid a very low price for its stock by JPMorgan Chase. It also disclosed that regulators were unaware of Bear’s precarious health and did not know until the afternoon of Thursday, March 13, that the firm was planning to file for bankruptcy protection the next morning, according to the Times.

Pummeled by market rumors of insolvency, the investment house lost more than $10 billion —or more than 80 percent — of its available cash in a single day, the newspaper reported.

-- NYSSCPA.org News Staff

Posted on 4/4/08