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Opener: Discussion Begins with Bear Stearns

Dana Milbank: Hello from room G-50 of the Dirksen Senate Office Building, where the Senate Banking Committee is holding a hearing into the Bear Stearns bailout. The senators are concerned about whether the $30 billion in Federal loan guarantees created a "moral hazard."

"I think we must guard against creating a moral hazard that encourages firms to take excessive risk based on the expectations that they will reap all the profits while the federal government stands ready to cover any losses if they fail," said Sen. Richard Shelby (R-Ala.), the ranking Republican.

"I have received letters from my constituents with concerns that it is a bailout of the big bank that creates a moral hazard," said Sen. Tim Johnson (D-S.D.)

"I worry that as quickly as the federal government moved to save Bear Stearns from complete failure, it has moved at a snail's pace, if at all, to save homeowners from foreclosures, where the same types of moral hazards, like and not, existed," added Sen. Chuck Schumer (D-N.Y.)

Speaking of moral hazards, here�s another one to ponder: lawmakers on the committee passing judgment on Bear Stearns have, collectively, taken in more than $20 million in campaign contributions from securities and investment companies. And, for the most part, they do not seem terribly troubled about the Fed's actions to help Bear Stearns.

"Let me just say," Chairman Chris Dodd (D-Conn) said before a word of testimony was received, "that I want the witnesses to know, and others, that as a bottom-line consideration, I happen to believe that this was the right decision." Dodd, according to the Center for Responsive Politics, has taken $5,796,000 from the securities industry, including $319,300 from Bear Stearns employees and $92,300 from J.P. Morgan, the company that bought Bear Stearns.

Let's now get to your questions on this and other moral hazards.

_______________________

Highlights from the chat will be posted later this afternoon...

-- Dana Milbank

By Dana Milbank  | April 3, 2008; 1:14 PM ET
 
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