Now That’s a Subsidy

Since the problems at Bear Stearns first started making front page news, I’ve been emphasizing the distinction between the Fed and the Treasury, noting that actions of the Fed don’t involve taxpayer dollars other than indirectly. But today I read this item:

Although initial news reports of the deal said it was done at the behest of Treasury and the Federal Reserve, Treasury Secretary Henry Paulson and the White House, through its spokesmen, have taken to calling the Bear Stearns bailout a “Federal Reserve action.”
But in a letter to the bipartisan leadership of the Senate Finance Committee, Treasury officials admitted that Treasury was extensively involved in the deal, under which the $30 billion of taxpayer funds were put at risk.
Indeed, Paulson signed off on the important elements of the transaction, including the risk of the loss of taxpayer funds, in a letter to the central bank.

Now that’s a subsidy and, generally speaking, I’m ag’in it. Something like this needs to have substantial strings attached. The Will Principle, please!

Hat tip: Calculated Risk, who links to an interview with Treasury Secretary Paulson on the subject.

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