Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?

Question

Quizplus · Accepted Answer

The Fed's decision to bail out institutions was primarily driven by the fear that the failure of large institutions could threaten the stability of the entire financial system. This was seen as a greater risk to the economy than the moral hazard of bailing out institutions that had taken on too much risk. Rescuing floundering banks is also part of the Fed's mandate, as set forth in the Federal Reserve Act of 1913, but this alone may not have been sufficient to prompt the bailouts. The other options, currying political favor or bowing to pressure from Congress, are not supported by evidence and are unlikely to be the primary motivation for the Fed's actions.

Federal Reserve Chairman Ben Bernanke Was Not Happy About Bailing