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Bear Stearns Bailout Was `Finger in the Dike,' Historians Say
By Elliot Blair Smith
March 16 (Bloomberg) -- With Bear Stearns Cos.' temporary rescue in place, the $200 billion subprime crisis joins the history of government bailouts to preserve jobs, homes and savings when economic disaster looms.
Ever since Treasury Secretary William Gibbs McAdoo shut the New York Stock Exchange for four months in 1914, to prevent foreign investors from cashing out and throwing the U.S. into financial chaos at the outset of World War I, American policy makers routinely have suspended their support for free markets when confronted by economic peril.
``I think the systemic risks dominate right now, which means you've got to put your finger in the dike,'' says William Silber, a finance professor at New York University's Stern School of Business. He is the author of ``When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy'' (Princeton University Press, 232 pages, $27.95).
Bailouts can buy time while policy makers try to defuse panic. Last week, the Federal Reserve Bank of New York provided financial support for Bear Stearns, the fifth-largest U.S. securities firm. It faced eroding investor confidence in the fallout from losses related to securities based on mortgages to the least creditworthy borrowers.
JPMorgan Chase & Co. and the Fed said they would back New York-based Bear Stearns with emergency funding for an initial period of up to 28 days in the largest U.S. bailout of a securities firm. The deal is part of an agreement that enables the investment bank to borrow from the New York Fed's discount window while all three seek permanent financing or alternatives.
Panic of 1907
Bear Stearns Bailout Was `Finger in the Dike,' Historians Say
By Elliot Blair Smith
March 16 (Bloomberg) -- With Bear Stearns Cos.' temporary rescue in place, the $200 billion subprime crisis joins the history of government bailouts to preserve jobs, homes and savings when economic disaster looms.
Ever since Treasury Secretary William Gibbs McAdoo shut the New York Stock Exchange for four months in 1914, to prevent foreign investors from cashing out and throwing the U.S. into financial chaos at the outset of World War I, American policy makers routinely have suspended their support for free markets when confronted by economic peril.
``I think the systemic risks dominate right now, which means you've got to put your finger in the dike,'' says William Silber, a finance professor at New York University's Stern School of Business. He is the author of ``When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy'' (Princeton University Press, 232 pages, $27.95).
Bailouts can buy time while policy makers try to defuse panic. Last week, the Federal Reserve Bank of New York provided financial support for Bear Stearns, the fifth-largest U.S. securities firm. It faced eroding investor confidence in the fallout from losses related to securities based on mortgages to the least creditworthy borrowers.
JPMorgan Chase & Co. and the Fed said they would back New York-based Bear Stearns with emergency funding for an initial period of up to 28 days in the largest U.S. bailout of a securities firm. The deal is part of an agreement that enables the investment bank to borrow from the New York Fed's discount window while all three seek permanent financing or alternatives.
Panic of 1907
