WASHINGTON - The Federal Reserve released documents Friday providing insights into its private deliberations in March that led to the controversial decisions to back a Bear Stearns rescue package and provide emergency loans to big Wall Street firms. The actions came when credit and financial problems were intensifying, threatening to paralyze the entire financial system and plunge the economy into a recession.
Given the financial markets' fragile condition at the time, the Fed said it felt compelled to intervene, because an "immediate failure" of Bear Stearns would bring about an "expected contagion."
Fed Chairman Ben Bernanke and his colleagues initially moved on March 14 to provide temporary emergency financing to Bear Stearns through an arrangement with J.P. Morgan Chase & Co. Two days later, the Fed agreed to provide backing for as much as $30 billion for a deal in which J.P. Morgan would take over the troubled company.
That same day, the Fed said it would let big Wall Street firms go directly to the Fed for emergency loans, a privilege only commercial banks had previously enjoyed. It was the broadest use of the Fed's lending powers since the 1930s.
The decision was "based on recent, rapidly changing developments," the documents said.
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