ss01

Why Is Bear Stearns Stock Rallying?

The bondholders get made whole doesn't seem to me like an orderly liquidation. That's a bail out and moral hazard rolled up. Let's call a spade a spade please. It sets a terrible precedent for who and how losses should be absorbed in these situations and creates fodder for years of legal action.

That's not to say it was the wrong solution at the time. I don't think anyone outside of a few people at BS and JPM know what the real consequences would have been. Obviously, as Paul Volker says, the Fed took a judgment that the consequences as they understood them weren't worth the risk. It does set a terrible precedent with respect to debt holders though.