U.S. Treasury: Fed's Bear actions help all investors

21/03/2008 - 20:34

WASHINGTON (Reuters) - The Federal Reserve's actions to lend billions of dollars to prop up and sell off ailing brokerage Bear Stearns will help all Americans by stabilizing capital markets, a senior U.S. Treasury official said.

In a transcript released on Friday of a television interview on C-SPAN to air on Sunday, U.S. Treasury Assistant Secretary for Financial Markets Anthony Ryan said action by the Fed to assume $30 billion in securities obligation from Bear Stearns was among actions done "to facilitate liquidity and orderliness of the markets."

Under a deal brokered Sunday through the Fed and the Treasury, Bear Stearns agreed to be sold to a much financially stronger J.P. Morgan Chase & Co for a what many considered to be a bargain price of $236 million.

"In terms of what the Fed did and what other regulators are doing to help facilitate orderliness in our capital markets, I do think that helps everybody, given their vested interests in ensuring that financial institutions can lend to them and that there's stability in their investments they can make into the capital markets," Ryan said.

In addition to taking on $30 billion of Bear Stearns' most illiquid mortgage-backed securities, the Fed said on Thursday that it lent about $12.9 billion to Bear Stearns in the past week through a special credit facility it arranged with J.P. Morgan Chase.

Other Wall Street broker-dealers borrowed nearly $29 billion from the Fed in the week to Wednesday.

Asked whether the administration sees any merit in negotiating with U.S. Rep. Barney Frank and U.S. Sen. Christopher Dodd over their proposals to provide more federal mortgage guarantees, Ryan said Treasury's key focus remains increasing the mortgage modifications by the private-sector "Hope Now" alliance of lenders, servicers and investors.

"Our focus is really making what we have move forward as effectively as it possibly can," Ryan said. "We feel that is the best thing to be doing. It is working. We don't want to see things that could compromise or undermine that effort."

Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, and Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, have said they plan to renew their efforts to provide more government aid to housing sector. Their proposals involve providing more government guarantees to some $300 billion in Federal Housing Administration loans to refinancing distressed mortgages and reduce the principal amount.

Ryan said he had a "great deal of confidence" in U.S. capital markets and that both market participants and policy makers were taking actions to help them function more effectively.

(Reporting by David Lawder, editing by Richard Chang)

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