Other articles by Craig Torres:

Morgan Stanley, Goldman reborn as new entities Bernanke: Yield curve not a slowdown signal VP's role likely key to next Fed pick

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," Sen. Christopher Dodd of Connecticut and six other Democrats wrote Bernanke. They asked the Fed to swap Treasury notes for bonds backed by student loans. In a separate letter, Pennsylvania Democratic Rep. Paul Kanjorski and 31 House members said they wanted 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 last week, 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.

The Fed's loans to Bear Stearns were "a rogue operation," said Anna Schwartz, who co-wrote "A Monetary History of the United States" with the late Nobel laureate Milton Friedman.

"To me, it is an open and shut case," she said in an interview. "The Fed had no business intervening there."

There are already indications that investors perceive the safety net to be widening as a result of the actions by Bernanke, 54, and New York Fed President Timothy Geithner. The Bear Stearns bailout and an emergency facility to loan directly to government bond dealers triggered a decline in measures of credit risk for investment banks and for Fannie Mae, the Washington-based, government-chartered company that is the nation's largest source of funds for home mortgages.

Geithner defended the loans before the Senate Banking Committee on April 3, saying that the Fed needed to offset risks posed to the entire financial system. A systemic collapse on Wall Street would also mean "higher borrowing costs for housing, education, and the expenses of everyday life," Geithner said.