The NYT Hides the Bailout of Bear Stearns From Readers

The NYT told readers why the Fed had to use tens of billion of taxpayer dollars to keep Bear Stearns in business. It explained that letting the bank go under would lead to a chain reaction of collapses throughout the financial system. This is not true. The Fed could have followed the example of the Bank of England in its takeover of Northern Rock. Northern Rock continues to function paying off depositors and honoring other commitments. The major difference is that the incompetent managers who drove Northern Rock into bankruptcy were thrown out on the street. At Bear Stearns they are still collecting multi-million dollar salaries. The other big difference is that Northern Rock's shareholders essentially lost all their money. That's what happens when you buy stock in a company that goes bankrupt. (It is possible that when the company is resold to the public there will be some money from the sales to kick back to shareholders.) By contrast, stockholders in Bear Stearns still have $4 billion in equity, courtesy of U.S. taxpayers.

--Dean Baker