This is probably old news to most people, but if you haven’t been keeping up with the markets lately, Bear Stearns is being acquired by JP Morgan (with the help of the Fed). Under the deal JP Morgan is essentially risking $1 billion dollars while the Fed is putting up $29 billion dollars of tax payer money.

There has been a lot of controversy concerning this and whether it was necessary. The best arguments I have heard against the deal are neatly summarized in Hussman’s weekly market comment.

“The clear historical role of the Federal Reserve has been to manage the composition of Federal liabilities (by varying the mix of Treasury securities and monetary base - currency and bank reserves - held by the public). The recent transaction is a dangerous break from that role, in which unelected bureaucrats are committing public funds to facilitate private business transactions and selectively defend the holders of corporate securities. Only Congress has the Constitutional right, by the representative will of the people, to commit public funds. The Bear Stearns deal is a dangerous precedent and a dilution of Congressional prerogative.”

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