CSBJ Daily

WASHINGTON (AP) _ The Federal Reserve moved to assist a Wall Street investment bank on the brink of bankruptcy to prevent a failure that could have dealt serious consequences to the U.S. economy, Federal Reserve Chairman Ben Bernanke said today.

“Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain,” Bernanke told the Senate Banking Committee.

Bernanke was the top witness at a hearing called to examine whether the Fed was justified in providing up to $30 billion to facilitate the sale of Bear Stearns Cos. to JP Morgan Chase & Co.

Democrats on the Senate Banking Committee said they wanted to find out what pressures the Bush administration had brought to close the sale and whether big investment banks were getting preferential treatment over millions of Americans in danger of defaulting on their mortgages.

Bernanke said that if Bear Stearns had been allowed to fail, it would have led to a “chaotic unwinding” of Bear Stearns investments held by individuals and other financial institutions.

In his testimony Wednesday, Bernanke said he did not believe the central bank would lose money on the deal and said it could make money. He said he did not consider the transaction a bailout because of the losses sustained by Bear Stearns shareholders.