A rift is emerging between the White House and the US Federal Reserve over whether banks should be bailed out by taxpayers, The Times has learnt.
It is understood that President Bush and his advisers are concerned about the repercussions of protecting a financial institution from bankruptcy because of its own poor decisions.
The White House is anxious about the long-term implications of a bank bailout and of the extension of emergency cheap credit facilities to investment firms. In what is an election year in the United States, the President is worried that Washington will be accused of using taxpayers’ money to protect executives, staff and shareholders from the consequences of poor risk management. He also fears that Wall Street will become mired in new, onerous regulation.
US TREASURY SECRETARY Henry Paulson has revealed his department is working on a "blueprint for regulatory reform" in an effort to avert further market turmoil in the wake of investment bank Bear Stearns' collapse, The Telegraph reports.
"This latest episode has highlighted that the world has changed," he said. "These changes require us all to think more broadly about the regulatory and supervisory framework."
He said the move by the Federal Reserve to open its lending to securities firms on the same terms as regulated banks was appropriate, but as an emergency measure.
BEAR STEARNS’S BELEAGUERED STAFF looked on in bemusement yesterday as a crowd of some 200 struggling homeowners burst into the firm's headquarters to protest at the US government's involvement in a rescue takeover, The Guardian reports.
Chanting "not Wall Street but Main Street" and waving colourful placards, the group shouted objections to the use of Federal Reserve money in guaranteeing JP Morgan Chase's $1.2bn (£600m) buyout, which saved the bank from bankruptcy.
The Neighbourhood Assistance Corporation of America, which organised the demonstration, argues that Bear Stearns contributed to the financial crisis through its leading role in packaging and selling sub-prime mortgages on the debt markets.
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