An article in the New York Times published just after the Fed helped to save Bear Stearns from bankruptcy noted: If Bear Stearns failed, for example, it would result in a wholesale dumping of mortgage securities and other assets onto a market that is frozen and where buyers are in hiding. This fire sale would force surviving institutions carrying the same types of securities on their books to mark down their positions.
a. Why did Bear Stearns almost fail?
b. How did the Federal Reserve rescue Bear Stearns?
c. What is the debt-deflation process? Does this process provide any insight into why the Federal Reserve rescued Bear Stearns?