Bailouts? Some critics of the Fed’s actions with AIG and Bear Stearns said that the government was just bailing out failing financial firms that should have been allowed to fail. It is true that...

Bailouts? Some critics of the Fed’s actions with AIG and Bear Stearns said that the government was just bailing out failing financial firms that should have been allowed to fail. It is true that owners of both firms did benefit from these actions. Nonetheless, can you defend the Fed? (Related to Application 4 on pages 312–313.)