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Is Bear Stearns Too Big to Fail?

Maybe it thought so, when it was taking on too many risky assets over the last few years, encouraged by previous episodes of inflationary policy. The Fed wants to give that impression too, to reassure investors--and middle class pension-holders especially--spooked by the prospect of a massive sell-off of assets, and what that would mean to the overall market. But a correction is inevitable, and the Fed's action yesterday is the latest of several interventions in this still-short year meant to delay it, so that the political business cycle will work, and produce a correction sometime after November 4th. What I wonder is how much inflation will be endured in order to maintain these policies? Aren't falling asset prices part of the long-term solution? And why is Bear Stearns worth it?

Contact Christopher Westley

Christopher Westley a professor of economics in the Lutgert College Business at Florida Gulf Coast University and an associated scholar at the Mises Institute.

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