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Bernanke and the four Fed governors voted yesterday to become creditors to Bear Stearns Cos., a securities firm that isn’t a bank, by invoking a law that hasn’t been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms.

“It’s a re-drawing of the relationship of the Federal Reserve with the rest of the financial system,” said Vincent Reinhart, former director of the Division of Monetary Affairs at the Board. Risks of so-called moral hazard, where firms will now come to count on bailouts by a federal agency, “are considerable,” he said.

The cost of doing nothing may have been even greater, say other former Fed officials. Bernanke is attempting to keep the nation’s financial machinery working as record home foreclosures make investors reluctant to hold even bonds backed by Fannie Mae and Freddie Mac, government-chartered firms. The 54-year-old Fed chairman is also trying to contend with a worsening economic slump: Reports this week showed that retail sales unexpectedly fell and consumer confidence slid to a 16-year low.

Meyer’s Experience

“As a governor, you never want to be placed in this position,” said former Fed governor Laurence Meyer, who served during the central bank’s coordination of the rescue of hedge fund Long-Term Capital Management LLC in 1998. “Everybody has to be uncomfortable with this. But it is always, compared to what? Just imagine what would have happened today if this action hadn’t been taken.”

Even with the bailout, stocks retreated. The Standard & Poor’s 500 Index fell 2.1 percent yesterday to 1,288.14. The S&P Financials Index lost 4.1 percent. Bear Stearns tumbled $27, or 47 percent, to $30. Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also declined.

Taking the gross domestic product of both economies in 2007, the combined GDP of the 15 countries which use the euro overtook that of the United States when the European currency surged to a record high of more than $1.56 per euro.

“The curious outcome of breaching this latest milestone is that the size of the euro zone’s annual output has now exceeded that of the U.S.,” the economics department of Goldman Sachs, the Wall Street investment bank, said in a note to clients.

In its annual report on more than 190 countries, the State Department did say Tuesday that China’s “overall human rights record remained poor” in 2007. China, the report said, tightened media and Internet curbs and increased controls on religious freedom in Tibet and the western Xinjiang region. The report said that China’s abuses also included “extrajudicial killings, torture and coerced confessions of prisoners, and the use of forced labor.”

But the report dropped China from a list of 10 countries that it deemed the worst offenders: North Korea, Myanmar, Iran, Syria, Zimbabwe, Cuba, Belarus, Uzbekistan, Eritrea and Sudan.

At a news conference, Jonathan Farrar, acting assistant secretary of state for democracy, human rights and labor, did not answer questions about why China was dropped from the list of worst abusers.

“I think the report highlights that generally the human rights record remains poor,” he said.

When asked repeatedly why China was dropped from the list, and whether that had anything to do with the Beijing Olympics this summer, Farrar said: “I would say China is listed under a section dealing with authoritarian countries undergoing economic reform where the democratic political reform has not kept pace. And that is a completely accurate assessment.”

The press freedom group Reporters Without Borders denounced the move. “This decision was announced even as it was learned that some 100 Tibetan monks have been arrested and Chinese authorities are refusing to release activist Hu Jia and dozens of other freedom of expression advocates,” the organization said in a statement. “U.S. authorities are depriving themselves of yet another effective way to pressure China, without having achieved any good-will gesture from Beijing.”

Other critics said that the United States should look closer to home when gauging human rights abuses.

Amnesty International USA complained that the Bush administration was giving lip service to human rights around the world while ignoring abuses by allies of the United States.

In a videoconference, Bush heard from U.S. military and civilian personnel about the challenges ranging from fighting local government and police corruption to persuading farmers to abandon a lucrative poppy drug trade for other crops.

Bush heard tales of all-night tea drinking sessions to coax local residents into cooperating, and of tribesmen crossing mountains to attend government meetings seen as building blocks for the country’s democracy-in-the-making.

“I must say, I’m a little envious,” Bush said. “If I were slightly younger and not employed here, I think it would be a fantastic experience to be on the front lines of helping this young democracy succeed.”

Peaceful street marches by Tibetan Buddhist monks over past days gave way to the biggest demonstrations the remote, Himalayan region has seen in nearly two decades, with anti-riot police patrolling the streets just months before the Beijing Olympics.

“Now it’s very chaotic outside,” an ethnic Tibetan resident said by telephone. “People have been burning cars and motorbikes and buses. There is smoke everywhere and they have been throwing rocks and breaking windows. We’re scared.”

Japan’s Kyodo news agency said rioters had taken control of central Lhasa, quoting a British journalist there. Radio Free Asia said Chinese police fired on rioting Tibetan protesters, killing at least two.

Residents around the Jokhang temple in old Lhasa that was a scene of protests said they were hiding indoors. Some said they had seen lines of anti-riot police, but none spoke of gunfire. “We are waiting to see what will happen tomorrow,” said an ethnic Tibetan woman. “It could get much worse, so we are scared.”

Up to 400 protesters, including students, had gathered around a market near the Jokhang temple early on Friday and were confronted by about 1,000 police, according to a witness cited by Matt Whitticase of the Free Tibet Campaign in London.

Four police were injured, and another protest break out near the Potala Palace, Whitticase added.

The same type of information that raised suspicions about New York Gov. Eliot Spitzer is reviewed every day by authorities to find traces of money laundering, check fraud, identity theft or any crime that may involve a financial institution.

As concerns about fraud and terrorist financing grow, an increasing number of suspicious deposits, withdrawals and money transfers are being reported by banks and others to the federal government. Banks and credit unions as well as currency dealers and stores that cash checks reported a record 17.6 million transactions to the Financial Crimes Enforcement Network in 2006, according to a report from the network, a bureau of the U.S. Treasury Department.

“I don’t think Americans understand that their financial transactions are being reported and routinely examined,” said Barry Steinhardt of the American Civil Liberties Union.

The Treasury Department’s database now contains records of more than 100 million financial transactions going back to at least 1996, said network spokesman Steve Hudak.

Teams of agents from the FBI, IRS, Drug Enforcement Administration and other agencies regularly review newly filed financial reports and launch investigations. Federal and local authorities search the database to find information about people that can help ongoing probes. Treasury Department analysts study the reports to detect trends in fraud and issue reports alerting financial institutions.

“The government has access to untold volumes of records and can draw all sorts of conclusions about us, and many are going to be wrong,” Steinhardt said.

Bankers disagree. “For the typical bank customer, this means very little because there’s nothing they’re doing that’s likely to be viewed as out of the ordinary,” said Richard Riese, head of regulatory compliance for the American Bankers Association.

The reporting system dates to the early 1970s when federal agents sought to pinpoint drug dealers by looking for people making large cash deposits.

Financial institutions have long been required to report cash transactions over $10,000. Those reports — simple notices of a deposit or withdrawal — account for more than 90% of the records the enforcement network gets each year.

Far more controversial are secret “suspicious activity reports” filed by financial institutions and reviewed by teams of agents spread around the country. The investigation of Spitzer began when a bank spotted potentially suspicious transfers from several accounts and filed reports with the IRS, according to a federal official who spoke on condition of anonymity. The official did not want his name used because he’s not authorized to discuss the case publicly.

The number of suspicious activity reports soared from 413,000 in 2003 to 1 million in 2006, according to the enforcement network.

The emergency funding will be available to Bear Stearns “as necessary,” JPMorgan Chase said in a statement.

The Fed, through its discount window, will provide financing to JPMorgan Chase. JPMorgan Chase said it did not believe this transaction exposes its shareholders to “any material risk.”

JPMorgan Chase said it was working closely with Bear Stearns on securing permanent financing or other alternatives for the bank, which has been battered by a global credit crunch and the US housing slump.

The Wall Street investment bank has sustained hundreds of millions of dollars in losses in the mortgage-related credit crisis that erupted in mid-2007.

Bear Stearns confirmed that it has agreed to a secured loan facility for up to 28 days with JPMorgan Chase. The company said it was in talks with JPMorgan about permanent financing or other alternatives.

The company said its liquidity position had “significantly deteriorated” in the last 24 hours.

“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” said Alan Schwartz, the company’s president and chief executive.

“We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated,” he said.

“We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations,” the Bear Stearns executive said.

The bureau appears to have used the blanket records demands at least 11 times in 2006 alone as a quick way to clean up mistakes made over several years after the Sept. 11, 2001, attacks, according to a letter provided to Congress by a lawyer for an F.B.I. agent who witnessed the missteps.

The vote was reset for Friday.

The bill would revamp a 1978 surveillance law and reject President George W. Bush’s demand that phone companies that participated in his warrantless domestic spy program begun after the September 11 attacks be immunized from lawsuits.

House Republican Whip Roy Blunt said he wants to privately inform colleagues how the Democratic measure could disrupt anti-terrorism efforts.

Blunt said several lawmakers with high-security clearance already had access to the information, but wanted to make sure all were aware of it.

“There are a significant number of elements of how the (1978) Foreign Intelligence Surveillance Act works and … specific examples of how their proposed changes would prevent it from working that I think can only be disclosed in a secret session,” Blunt said.

Several Democrats voiced skepticism, with some suggesting Republicans were merely trying to delay action on the bill that Bush has threatened to veto.