Fed faces political heat over Bear Stearns deal

Mon Mar 17, 2008 4:11pm EDT
By Emily Kaiser - Analysis

WASHINGTON (Reuters) - The U.S. Federal Reserve walked into a political firestorm by pledging $30 billion in taxpayer money to guarantee Bear Stearns' assets while struggling homeowners at the core of the financial crisis default on their mortgages.

To be sure, the central bank could hardly sit idly by while the fifth-largest U.S. investment bank collapsed, potentially dragging down other financial firms with it. But by throwing out a lifeline believed to be the biggest single Fed bailout on record, it opened itself up to some pointed criticism.

"As the Fed rides to the aid of Bear Stearns, there is a growing disconnect between the Bush administration's willingness to help Wall Street and its willingness to aid the homeowners facing foreclosure," said Kurt Eggert, a professor at Chapman University's law school in Orange, California.

"When it comes to reducing foreclosures, the Bush administration has adopted a 'What me worry?' attitude, hoping that the market will fix the problem with some cheerleading by federal regulators," he said.

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