Rogue operation, where are you?

Reading about the increasing demands being made on the Fed since the Bear Stearns bailout, I can't help but think of the theme song to the vintage TV series "Car 54, Where are You?"

There's a hold up in the Bronx,
Brooklyn's broken out in fights.
There's a traffic jam in Harlem
That's backed up to Jackson Heights.
There's a scout troop short a child,
Khruschev's due at Idlewild
Car 54, Where Are You? 

Yes, crises abound for the modern-day Toody and Muldoon of the finance world, according to Bloomberg.  But it's their own fault; former pointy-head academic Ben Bernanke and lifelong government apparatchik Timothy Geithner have opened up a Pandora's Box with the Bear rescue.  Sen. Chris Dodd (D-Conn.) recently pushed for help to re-liquefy the student loan market… but that's just the beginning:

Former Fed officials and
other Fed-watchers say that Bernanke's actions in saving Bear
Stearns will expose the central bank to continuing pressure to
use its $889 billion balance sheet to prop up companies or
entire industries deemed important by politicians. The Fed
satisfied Dodd's request today, expanding the swaps to include
securities backed by student debt.

Former St. Louis Fed chief William Poole cites Fannie Mae as a likely next candidate.  And traders are betting on still others back in the investment-banking sector:

The cost of default protection on Merrill Lynch & Co. debt
fell to 1.4 percentage point by April 30 from 3.3 percentage
points on March 14, CMA Datavision's credit-default swaps prices
show. The cost of protection on Lehman Brothers Holdings Inc.
securities has fallen to 1.5 percentage points from 4.5
percentage points over the same period.

No wonder Anna Schwartz, Milton Friedman's collaborator on "A Monetary History of the United States," calls the Bear bailout a "rogue operation" that the Fed had no business conducting.  But it's too late now.  The Fed is fueling expectations of more and bigger bailouts.  It can't end well.

The Daily Reckoning