Almost exactly ten years ago, the US government rescued Bear Stearns, a large Wall Street investment bank that was sinking under the weight of its subprime mortgage holdings. A recent article in the Wall Street Journal suggested that the Bear rescue turned out to be only a temporary measure and did not prevent the financial crisis that occurred six months later. But rather than an unsuccessful effort to avert a crisis, the Bear Stearns bailout was actually a principal cause of the disastrous panic that hit the markets six months later.
To many on Wall Street and elsewhere in 2008, the rescue of Bear established a policy that the government was going to rescue all the large financial institutions. Otherwise, the bailout made no logical sense.
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