Safety Patrol On Wall Street

May 2 (Bloomberg) -- A month after the Federal Reserve rescued Bear Stearns Cos. from bankruptcy, Chairman Ben S. Bernanke got an S.O.S. from Congress.

There is ``a potential crisis in the student-loan market'' requiring ``similar bold action,'' Chairman Christopher Dodd of Connecticut and six other Democrats wrote Bernanke. They want the Fed to swap Treasury notes for bonds backed by student loans. In a separate letter, Pennsylvania Democratic Representative Paul Kanjorski and 31 House members said they want Bernanke to channel money directly to education-finance firms.

Student loans are just the start. 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.

``It is appalling where we are right now,'' former St. Louis Fed President William Poole, who retired in March, said in an interview. The Fed has introduced ``a backstop for the entire financial system.''

Critics argue that the result will be to foster greater risk-taking among investors emboldened by the belief that the government will bail them out of bad decisions.

George Carlin has a routine where he laments that parents are way too overprotective of children these days. "There are a lot of loser kids out there and you can't protect them all," he says. "These soft fruity baby boomers are raising a whole generation of soft fruity kids who aren't even allowed to have hazardous toys."

Have our financial leaders gone soft and fruity themselves? Those posturing macho masters of the universe are all clamoring now for the Fed to give them a free do-over on their speculative excesses of the past few years. Now Congress is insisting that the Fed insure and bail out everything from student loans to fraudulent mortgages.

Carlin says, "Whatever happened to natural selection, survival of the fittest? The kid who eats too many marbles doesn't survive to have kids of his own."

Having seen my own kids get gold stars for simply handing in homework, and win trophies simply for being on the roster of a last place soccer team, and watched as the local middle school banned touch football at recess for being too hazardous, I know whereof Carlin speaks.

But nannies on Wall Street to wipe the spilled milk of investment bankers?

The greatest danger in any democracy is that the 'people' will discover that they can give themselves all that public money. Like a kid who learns where the cookies are hidden, the temptation to eat them all before dinner is just too great.

A last word from George Carlin:

Nature knows best. We are saving entirely too many lives in this country--of all ages. Nature should be allowed to do its job of killing off the weak and sickly and ignorant people without interference from airbags, and batting helmets.

And Ben Bernake.