Bernanke: Fed had little choice but to rescue Bear

By Emily Kaiser

WASHINGTON (Reuters) - The U.S. Federal Reserve saw no choice but to orchestrate a dramatic rescue of Bear Stearns last month after the investment bank warned bankruptcy was imminent, Fed Chairman Ben Bernanke said on Wednesday.

In a speech to the congressional Joint Economic Committee, Bernanke sought to explain the U.S. central bank's controversial decision to offer backing of as much as $30 billion in government money through JPMorgan Chase to prevent a sudden collapse of Bear Stearns.

He said the Fed was worried that a sudden collapse of Bear could have inflicted serious pain on already limping financial markets, with dangerous implications for the broader economy.

It was Bernanke's first testimony since the rescue, and he faced tough questioning from some members of Congress who worried that taxpayers' money was unjustifiably put at risk to bail out a Wall Street bank.

On March 13, the day before the Fed and JPMorgan announced an emergency funding deal, Bear informed the Fed and other government agencies that it would have to file for Chapter 11 bankruptcy protection the next day unless alternative sources of funds became available, Bernanke said.

"This news raised difficult questions of public policy," Bernanke said in his speech on Wednesday.

On March 16, JPMorgan agreed to buy Bear for a fire-sale price of $2 per share in a Sunday night announcement that shocked financial markets because Bear's stock had traded above $60 per share just the week before. The offer has since been raised to $10 per share.

"Normally, the market sorts out which companies survive and which fail, and that is as it should be," Bernanke said. "However, the issues raised here extended well beyond the fate of one company."