NEW YORK (Dow Jones) -- If you're thinking about refinancing your mortgage, getting a loan to buy a new car, or switching to a lower-interest rate credit card, you can thank the Federal Reserve for your ability to do so.

You might also want to mention that the recent boost to your 401(k) portfolio is appreciated as well.

Though it may not be obvious, anyone who participates in the credit world -- and that's most of us -- owes the Fed a debt of gratitude for stepping in and helping to prevent the collapse of Bear Stearns Cos. (BSC).

Populist class wars are convenient for politicians such Senate Majority Leader Harry Reid or anyone who claims this deal is for Wall Street fat cats. But class and privilege don't float as good explanations for the Fed's $30 billion bailout of Bear.

Sure, the Fed is taking it on the chin. Taxpayers will buy a boatload of sketchy securities from Bear and hope that they produce any kind of return. J.P. Morgan Chase & Co. (JPM), with the Fed's backing, will absorb the rest of Bear through a buyout. Taxpayers will probably take a loss, but no one knows how much it will be. It could be $29.9 billion. It could be half that, or nothing.

The move is unprecedented. The Fed on rare occasions has backed up banks, but it's never backed up investment banks. The idea that investment banks get bank protection is what should be debated, but no, everyone wants to know if the little guy is getting screwed.

On the surface, it sure seems that way, but the reality is Bear and the executives who run it are going to disappear. At best, Bear's biggest investors are getting about 10 cents on the dollar for stock they bought last year, and as many as half of the company's ranks will be unemployed by summertime.

Call it a bailout or call it corporate welfare, Timothy Geithner, the New York Federal Reserve president, had something else in mind when he forced Bear into the arms of its rival and took responsibility for $30 billion in its assets: the financial system.

"Main Street, directly or indirectly, by holding mutual funds, by having a pension in mutual funds or insurance invested in securities -- all of these are ways the person on the street has an interest in a stable financial system," said Lawrence J. White, a New York University professor who served on the Federal Home Loan Bank Board during the savings and loan crisis.

"The ability of an individual to get credit also" comes from Wall Street, White said.

The campaign trail

It's those kinds of truths that get lost in the rhetoric in Congress or on the campaign trail. The latest to chime in, Republican John McCain, said on March 25 that he didn't favor government intervention either for "big banks or small borrowers."

The Arizona senator, after months of silence on the issue, outlined a policy that seemed to suggest that the market should clean itself up. He wants accountants to review appraisal policies and lenders voluntarily to help homeowners on the brink. Should institutions fail or homeowners go bankrupt, McCain hinted that both had brought it upon themselves.

"Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't," McCain said according to a transcript of his remarks.

Sorry John, but an economic collapse wouldn't be limited to those who made bad bets or mistakes.

On the Democratic side, Barack Obama, the Illinois senator, told reporters that he is generally wary of bailouts but that there can be "exceptions," according to an interview in the Chicago Tribune.

Obama has said he'd like to create incentives for lenders to refinance mortgages and he wants crack down on irresponsible lenders. Most of the candidate's policies are tougher standards for lenders not borrowers.

Sen. Hillary Clinton has proposed a $30 billion program to help troubled home borrowers. She also wants to get former Fed chairmen Paul Volcker and Alan Greenspan on the job. But she also offered an honest assessment of the Bear Stearns bailout.

"When there's a run on mortgage-backed securities and the bottom falls out for investment banks, the bottom falls out for families who see the value of their homes -- their greatest source of wealth -- decline.

"When our credit markets freeze up, that doesn't just cause panic on our trading floors, but in small businesses that can't get the capital they need to survive, and on college campuses, like this one, when the student loan for next semester falls through," Clinton said.

Though she stopped short of endorsing the Fed's bailout of Bear Stearns, she's come the closest of any candidate to acknowledging that Wall Street and Main Street are just two names for the American credit highway.

'Deleterious consequences'

It's that chain reaction Clinton is referencing that Geithner and the Fed were anticipating as Bear Stearns slid toward bankruptcy on March 16. Make no mistake; the industry would have collapsed without Fed intervention.

"It was not a bailout of Bear Stearns," White said. "A run on Bear would have deleterious consequences. The Fed's goal was to reassure creditors and to stop the run problem...Lehman would have been next."

So, if the Fed is backing up investment banks like it does commercial banks, then shouldn't investment banks be under tighter controls? Isn't this intervention the equivalent of creditor insurance for those complex loan agreements between Wall Street banks?

If so, then there are bigger questions at stake than whether or not some fat cats got bailed out. Wall Street has been living a life of freewheeling risk, built around the fact the industry was doing it on its own dime. Backed by taxpayers, brokers may be subject to capital requirements, managerial competency standards and restrictions on what kinds of business it can do.

In other words, they'd be just like regular banks.

Taxpayer bailouts are the means, but regulation is the price of survival -- for the fat cats and all of us.

  (END) Dow Jones Newswires
  03-27-08 0012ET
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