Grassley Asks Whether Paulson Pushed Fed Into Bear Stearns Deal
By Brian Faler and Peter Cook
March 27 (Bloomberg) -- The top Republican on the Senate Finance Committee said he wants to know whether Treasury Secretary Henry Paulson pressured Federal Reserve Chairman Ben S. Bernanke into brokering the deal that allowed the sale of Bear Stearns Cos. to JPMorgan Chase & Co.
Iowa Senator Charles Grassley, who will be involved in one of two congressional inquiries into the deal, asked in an interview with Bloomberg Television yesterday whether Paulson pushed Bernanke into authorizing the $29 billion loan needed to make the sale or if the agreement was the result of an ``independent Fed decision.''
``We want to know the extent to which Paulson was involved in the deal,'' Grassley said. ``The extent to which this was a political decision by a political branch of government that was urged on the Fed is very important to me -- that that not happen.''
The inquiries -- one by the Senate Finance Committee of which Grassley is the ranking Republican and the other by the Senate Banking Committee -- may herald a broader congressional backlash against the agreement, which Senate Majority Leader Harry Reid of Nevada has described as a ``bailout.''
Grassley said he doubted Congress would attempt to block the deal.
``I'm going to be very reluctant to have Congress step in because you get more politics involved at that point,'' he said.
Demand Details
Still, he said, lawmakers deserve to know the details of the agreement because taxpayer dollars are involved.
``We need to know the upside and the downside for the taxpayer,'' Grassley said. ``We also need to know whether or not this is a precedent.''
Jennifer Zuccarelli, a Treasury Department spokeswoman, responded to Grassley's remarks in an e-mail, saying: ``We will work with the committee to respond.''
Senate Banking Committee Chairman Christopher Dodd yesterday asked Bernanke, Bear Stearns Chief Executive Officer Alan Schwartz, JPMorgan CEO Jamie Dimon, Securities and Exchange Commission Chairman Christopher Cox and Paulson to testify at an April 3 hearing on the issue.
Separately, the Senate Finance Committee asked the company chief executives, Bernanke, New York Fed President Timothy Geithner and Paulson to provide details on how the buyout was negotiated.
The Fed, in an emergency action this month, authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns to help the company avert bankruptcy. JPMorgan contributed $1 billion.
`Taxpayer Dollars'
``Americans are being asked to back a brand new kind of transaction, to the tune of tens of billions of dollars,'' Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said yesterday in a statement. ``With jurisdiction over federal debt, it's the Finance Committee's responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars'' for the deal, Baucus said.
Dodd said he scheduled his hearing to explore the ``policy rationale'' behind the Fed's action, the impact of the original and new sale agreements on investors and the markets, and the implications for U.S. taxpayers and regulation of U.S. financial markets.
``It's some pushback from Congress to send a warning shot to the Fed to not use taxpayer resources to bail out Wall Street,'' said Andy Laperriere, managing director at International Strategy & Investment Group in Washington. ``If there is a significant negative response from Congress, it would deter the Fed from doing this in the future,'' Laperriere said.
Negotiators and Lawyers
Baucus and Grassley said in their letter that they want to know the names of all negotiators and lawyers involved in the transaction as well as all the steps taken, their specific dates and a list of steps yet to be taken. Grassley said he also wants to know how Bear Stearns's chief will ``come out of this'' compared to ``rank-and-file'' employees of the firm.
Baucus and Grassley want a description of the assets to be secured by the Federal Reserve, including their value and the types of mortgages underlying the assets. The senators asked for all copies of documents that will be filed with the Securities and Exchange Commission.
The senators asked for a response no later than tomorrow.
Federal Reserve spokeswoman Susan Stawick said the central bank has received the letter and will respond to it.
JPMorgan spokesman Joseph Evangelisti declined to comment on the Finance Committee request. Bear Stearns spokesman Russell Sherman didn't return a call and e-mail seeking a comment.
To contact the reporters on this story: Brian Faler in Washington at bfaler@bloomberg.net; Peter Cook in Washington at pcook6@bloomberg.net.
Last Updated: March 27, 2008 00:01 EDT |
