Congratulations to the New York Fed for protecting the financial system

With the successful acquisition of Bear Stearns by JPMorgan Chase, the Federal Reserve Bank of New York once again soundly showed its mettle and simply blew away its critics, every single one of them. The "bailout" on Friday -- which was really by JPMorgan with the NY Fed really only lending "assistance" was only an intermediate measure intended to buy time for the "main show" which occurred on the weekend with the acquisition of Bear Stearns by JPMorgan Chase with the Fed agreeing to loan money on Bear Stearns assets.

Now, some lingering critics will contend that the Fed should have bailed out Bear Stearns much earlier or even last Summer or maybe even let them fail through bankruptcy, but the NY Fed did precisely the right thing and refused to get into the so-called "moral hazard" of propping up weak players, and did in fact step in at precisely the right time to protect the health of the overall financial system.

The way they did it, the remaining, healthy value of Bear Stearns business and assets will survive with JPMorgan Chase. Alas, Bear Stearns shareholders not only took a haircut but had their heads handed to them, but the NY Fed did the right thing by refusing to outright bail out a failing financial institution. The Fed let this once mighty investment bank fail, but was standing right there to make sure that on Monday Wall Street could open to "business as usual."

This was a remarkable achievement for the NY Fed and the Fed overall.

And the really good news is that a year or two from now when all of the dust has settled this whole "bailout" will not have cost U.S. taxpayers a single dime and they will probably even have made money on the deal. The NY Fed did not give any money to JPMorgan, but is loaning them money for which they charge interest.

Way to go NY Fed!

 -- Jack Krupansky