Is it a $30B bailout by the Fed or just a smart move?

As the government-backed sale of Bear Stearns bsc shows, one man's bailout is another man's prudent government action to forestall a financial crisis.

Some have criticized the Federal Reserve for providing $30 billion in financing to facilitate the investment bank's forced sale to JPMorgan Chase jpm. "I do see it as a bailout. … We may be left holding the bill as taxpayers," says John Taylor, CEO of the National Community Reinvestment Coalition.

The Fed made available $30 billion to support the Bear Stearns sale less than one week after announcing it will provide $200 billion in 28-day loans for cash-starved financial institutions. Taylor, who heads a non-profit group of community financial associations, wishes that the Fed's rush to pour money into the financial markets was matched by government action to help homeowners threatened with foreclosure.

The Fed's role in the Bear Stearns sale could end up costing taxpayers — or the government could make money on the deal. In return for $30 billion in financing, Bear provided as collateral difficult-to-price securities that investors now shun. If investor demand recovers, the Fed could turn a profit.

Others say the Fed's action was required to avert an even worse outcome. "You can say you don't want to reward risky behavior but … the sooner that we can clear the decks of the bad events, the sooner we can move forward," says economic consultant Carl Tannenbaum. "Otherwise, the risk is you could continue to see the dominoes falling, one institution after another."

This week's burst of federal action is the latest in a long line of crisis-fighting initiatives. In 1933, Franklin D. Roosevelt established the Home Owners Loan Corp. to help homeowners in danger of foreclosure. In 1984, the Fed provided billions of dollars to halt a global run on the nation's sixth-largest bank, Continental Illinois. Fourteen years later, Fed officials gathered top investment bankers in a New York conference room to prevent the failure of hedge fund Long-Term Capital Management from becoming a global financial crisis.

Yet, some Fed watchers are worried that its willingness to provide financing for investment banks has crossed the line into throwing good money after bad. "A bailout's already occurring under our noses, that we're not even aware of," says Joseph Mason, finance professor at Drexel University.

Even the Fed's much-applauded efforts to jump-start the economy amount to a silent bailout, some say. Since September, the Fed has lowered its benchmark lending rate by 3 full percentage points. Lower interest rates cut the return for savers and fatten profits at banks — which haven't been as quick to cut costs for borrowers — so the government already is causing money to flow from Main Street to Wall Street.

"The taxpayers are paying. We shouldn't lose sight of that," Michael Mussa, former chief economist of the International Monetary Fund, said at a recent Washington, D.C., seminar.

How much have rate cuts cost savers? A rough estimate would be up to $88 billion, almost three times as much as the Fed used to smooth the Bear Stearns sale.