Did Bear Stearns really need to go down in flames? It's a question that needs to be asked, and my answer is no.

Of course, I don't know the value of Bear Stearns's assets, and whether they could have served as collateral for private or government loans. So I cannot be entirely certain that my answer is correct. But here's how I see it:

Since the elimination of the Glass-Steagall Act in 1999 -- a move that broke down the wall separating commercial and investment banks that had existed since the 1930s -- the Federal Reserve never changed its discount lending policies. In other words, until Sunday night, when Bear Stearns was already destined for the dustbin, the Fed was able to make loans to commercial banks like JPMorgan Chase, but not directly to brokers like Bear Stearns.

Throughout the credit crisis, which dates back to last summer, the Fed's discount lending to banks was supposed to trickle down to brokers. But it never really did. Big banks either horded their cash or spent it for their own various purposes. As one Bear Stearns official noted to me, this is the first credit and lending crisis since the end of Glass-Steagall. And the consequences for Bear Stearns were catastrophic. While the Fed announced a $200 billion auction lending facility for both banks and brokers last Tuesday, that facility won't be activated for a couple more weeks. So no help there.

But if the Fed had changed its discount polices to reflect the post-Glass-Steagall era, Bear Stearns could have accessed short-term Fed loans, even for a few days. That could have made all the difference in the world.

Watching the venerable old firm pawned off to JPMorgan Chase for a couple hundred million bucks -- basically a bag of peanuts -- is painful to me. The building itself is worth at least $1.5 billion. And even though Bear made big mistakes with sub-prime hedge funds, the firm is chock full of talent and brainpower. Down through the years, the smart people at Bear were able to avoid numerous financial difficulties while helping the firm stay profitable. Bear alumni are scattered everywhere, as successful investment bankers, broker-dealers and financial advisors.

And yes, even one TV broadcaster. I served two stints at Bear Stearns, as chief economist and partner. I was there from 1978 to 1980, before heading to Washington to work for President Reagan. I was there again between 1986 and 1994, after which I resigned for difficult personal reasons.

But I won't let my personal involvement with Bear cloud my judgment of recent events: In waiting so many years to revise its discount policies in a manner consistent with congressional legislation, the Fed is guilty of a serious policy error. Continued...