Bear Stearns rescue was 'original sin' in financial crisis

2 September 2010

The decision to back up JPMorgan Chase's rescue of Bear Stearns in 2008 with government guarantees was a grave error that helped to make the financial crisis worse.

According to Peter Wallison, a member of the Financial Crisis Inquiry Commission, the state-supported rescue was "the original sin" by regulators as it led other firms to believe they would also be saved if necessary, reports Bloomberg.

"Companies probably didn't believe they had to raise as much capital as they might have needed because the government would ultimately rescue them and fewer creditors were going to be worried about their capitalization," he said.

JPMorgan took over Bear Stearns after the Federal Reserve gained control of $30 billion worth of mortgage-linked assets from the latter company.

Earlier this week, an inside source told the Financial Times that JPMorgan may close its commodities unit as it looks to comply with the Dodd-Frank Act's banning of proprietary trading.

By Gary Cooper

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