BY BAILEY HARRIS

Should regulators be allowed to rescue investment firms who are failing because of their own inept management and immoral practices? That is a question every taxpayer needs to be asking right now.

The Fed set a dangerous precedent last week when they made the decision to bail out Bear Sterns, a private securities firm that was on the verge of collapse. Bear Sterns is among the biggest players in the mortgage securities biz and the owner of one of the most aggressive subprime mortgage servicers in the U.S.

They are in financial trouble because their standards were especially lax during the housing boom. The company's clients also lost billions of dollars less than a year ago when two mortgage security heavy hedge funds collapsed.

If Bear Sterns were a commercial bank, they could do what all of the other banks are doing right now and borrow from the Fed's discount window. As it is, they are an investment bank.

To bail them out, the Fed needed to make a three-way arrangement with JP Morgan Chase. JP will borrow the money from the Fed, and then Bear Sterns will borrow the money from JP.

The arrangement offers a clear picture of the Fed's position: no company will be allowed to fail. There is no doubt that other financial institutions will pick up on it and seek out the intervention of the Fed as well.

Had Bear Sterns been allowed to fail, there would have been a domino effect. Worthless securities would have been unloaded in a fire sale in an already downtrodden market. Other banks might have been forced to write down the crappy securities they hold.

Some might say that is the price that should be paid. When you make bad business decisions, bad things happen to your business.

Did the Fed Cross the Line?

There have been a number of investors publicly cheering the Fed's move. In fact, much of the mainstream media coverage has put a downright cheerful spin on the Fed bailout. Many of the economists who have spoken publicly about it say that a bailout is a better option than an all out collapse.

But there are a few critics who are brave enough (and sensible enough) to speak out against the Fed's questionable actions:

'For the government to print money at the expense of taxpayers as opposed to requiring or going about a receivership and wind-down of any insolvent institutions should be troubling to taxpayers and regulators alike,' Josh Rosner, an analyst and expert on mortgage securities, told the Times. 'The Fed has now crossed the line in a very clear way on moral hazard, because they have opened the door to the view that they are required to save almost any institution through non-recourse loans.'

The problem of course is that the U.S. government doesn't have the cash on hand to bail out the many institutions scrambling for a lifeline. They'll need to print more money, which will then drive down the already failing dollar and leave everyone just a little bit poorer than they were before all of this started--except for the inept bank and financial institution executives who helped get the ball rolling. A safe landing will ensure that they get to keep their $10 million salaries.