A particularly disgraceful bit of news emerged on Friday. The Federal Reserve has guaranteed a credit line to help keep Bear Stearns afloat. I think this is a terrible idea.
Gretchen Morgenson hits the nail on the head in an acerbic commentary today. She writes:
. . . why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.
Gretchen actually understates the case. Bear was full partners with Baron in its ripoff of customers, and never paid the price.
