Fun with the Federal Reserve

Dear reader, can you spot the inconsistencies in the following speech, given today by Fed. Reserve Chairman Ben S. Bernanke ? Here's an extract (the full speech is available here):

Well-functioning financial markets are essential for the efficacy of monetary policy and, indeed, for economic growth and stability. To improve market liquidity and market functioning, and consistent with its role as the nation’s central bank, the Federal Reserve has supplemented its longstanding discount window by establishing three new facilities for lending to depository institutions and primary dealers.
...
The Primary Dealer Credit Facility was put in place in the wake of the near-failure of Bear Stearns, a large investment bank. On March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available. This news raised difficult questions of public policy. Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company. Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company’s failure could also have cast doubt on the financial positions of some of Bear Stearns’ thousands of counterparties and perhaps of companies with similar businesses. Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain. Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability. To prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, the Federal Reserve, in close consultation with the Treasury Department, agreed to provide funding to Bear Stearns through JPMorgan Chase. Over the following weekend, JPMorgan Chase agreed to purchase Bear Stearns and assumed Bear’s financial obligations.
...
Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year. I remain confident in our economy’s long-term prospects.

Emphasis are mine.

OK, hold on a minute, I'm getting confused. So, we live in an allegedly self-regulated market economy, where profits made by companies are redistributed only among their share-holders, and where companies in weakened positions are ruthlessly bought by healthier competitors, right ? Basic application of Darwinism to global economy, I can understand. But when the market gets screwed up, when the very same companies took too many risks and can't assume them, the federal administration intervenes with a big pile of public cash and erases the tab before things get worse ? That's pure genius ! As a speculator, I could have my cake, eat it, and have an affair with the pastry girl ! I still feel a piercing pain in my back pocket...

I'm also quite fond of the opposition "financial system / real economy". Should I understand that our current financial systems are fake economy ? Argh. Hard science and computing are so much simpler.

[Insert Billy Bragg/Stereolab song here]

Anyway. Caribou show tonight at the 40W. Looks like they found a new drummer...