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Article: Moral Hazard? A Greater Hazard Lurks.: The Fed's involvement in Bear Stearns' sale to JPMorgan Chase has created much concern about "moral hazard." But the real hazard now is Treasury Secretary Henry Paulson's proposed regulatory blueprint.
- Article from:
- US Banker
- Article date:
- May 1, 2008
- Author:
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In October 1907, J.P. Morgan bullied his banker brethren to prevent the collapse of the New York Stock Exchange. In March 2008, Federal Reserve chairman Ben Bernanke called upon chief executive Jamie Dimon and JPMorgan Chase to prevent the imminent bankruptcy of Bear Stearns. The financial markets shuddered during the week of March 10 as Bear, one of the big-five investment banks, failed to withstand a run. As the 85-year-old firm slid toward illiquidity, bankruptcy and cascading defaults lurked around the corner. On March 16, the Fed and JPMorgan Chase stared down the chaosand won. The system held.
Yet it didnt take long for the second-guessers to emerge. Moral ...