Bernanke: Bear Stearns deal no federal bailout

Federal Reserve Chairman Ben Bernanke on Wednesday defended the central bank’s unprecedented move to rescue investment bank Bear Stearns from bankruptcy, rejecting Democratic claims that the Bush administration stands ready to throw a lifeline to Wall Street but not ordinary homeowners during the current housing crisis.

{mosads}“I think there’s sort of a false dichotomy here,” Bernanke testified before the Joint Economic Committee. “We did not bail out Bear Stearns. Bear Stearns’ shareholders took a very significant loss. An 85-year-old company lost its independence and became acquired by another firm.”

He continued, “What was always in my mind was what was the best thing for the American public. And that’s why we took that action, and I believe that was the benefit of that action, not to help individual Wall Street people.”

The hearing marked the Fed chief’s first public remarks since the central bank, during the weekend of March 15-16, facilitated the sale of the faltering investment bank to rival JP Morgan by agreeing to back $29 billion worth of Bear Stearn’s assets that were tied to mortgages.

Aside from one exchange, in which Sen. Edward Kennedy (D-Mass.) angrily grilled Bernanke over the need to boost funds to the states to ease their financial problems, the lawmakers maintained a civil tone throughout, and largely did not appear willing to cast doubt on the wisdom of the Fed’s action.

Bernanke did not rule out the Fed's stepping in again to prop up another institution if it deemed its failure a threat to the financial system, but he said he did not anticipate the Fed doing so.

“I certainly hope, and do not expect, a repeat of this episode, but the future is uncertain, and we will obviously just have to keep monitoring what’s happening,” he said.