Here’s an excerpt from Brett Steenbarger‘s article "Preparing for Bear Stearns II," on his blog TraderFeed. He discusses the Fed’s moves to prevent another Bear Stearns type incident. 
Preparing for Bear Stearns II?
Thanks to an alert reader for this heads up on Fed Chair Bernanke’s recent speech posted to the FRB website. I found this portion of the speech particularly interesting:
In general, our system relies on market discipline to constrain leverage and risk-taking by financial firms, supplemented by prudential oversight when government guarantees (such as deposit insurance) or risks to general financial stability are involved. However, the enormous losses and writedowns taken at financial institutions around the world since August, as well as the run on Bear Stearns, show that, in this episode, neither market discipline nor regulatory oversight succeeded in limiting leverage and risk-taking sufficiently to preserve financial stability.
What this suggests is a likely consensus among the Fed, Treasury, and Congress that market discipline (i.e., free markets) is not enough to ensure financial stability, and the current level of regulation is not sufficient to ensure stability. It is not accidental that this speech was titled, "Financial Regulation and Financial Stability."
So what would this new, enhanced regulatory regime look like?"… click here for full article.
Brett concludes: "I suspect we’ll see the government fulfilling multiple "bridge banking" functions before the current credit problems have run their course. The big question is whether that provides confidence and security to financial markets or fear and further risk-aversion. If I were one of the shareholders or unsecured creditors referenced above, I’m not sure I’d draw solace from the new regulatory regime. The emphasis is on keeping the system functioning, not bailing out those in trouble."
My comment: I think there’s a tendency to view regulation generically as either more = good, or more = bad, rather than to take a look at the what the regulation actually is and how it’s going to work in practice (not necessarily predictable). Some is good, some is bad. Some is needed. None is bad, but none can be better than bad regulation… – Ilene
