Q: What’s behind your scrutiny of the Federal Reserve’s transaction involving the investment firm Bear Stearns?
A: In March, the Federal Reserve helped rescue America’s fifth largest investment bank by offering JP Morgan Chase a $30 billion dollar loan to help acquire a significant portion of Bear Stearns. As ranking member of the Senate Finance Committee with jurisdiction over U.S. bonded debt, I, along with Chairman Baucus, sent letters to the major players of the deal to learn more about the consequences. Our inquiry is separate from the question of whether the bailout was needed to avoid market panic. Instead we’re looking at the potential impact the sale has on the taxpayer and the precedent it sets for future federal involvement in the financial markets. In letters to the CEOs of Bear Stearns, JP Morgan Chase, the Chairman of the Federal Reserve System and the Secretary of the Treasury we asked if the taxpayer is exposed to potential risks. It’s taxpayer money on the line in this loan, so they deserve to know the details of the Fed’s action. Current economic stress exists not only on Wall Street but also on Main Street which makes it even more important that the Fed bring clarity to how the deal was made and how its implications will unfold in the marketplace and in hometowns across America.
In order to push this deal through, the Fed used a little understood provision that hasn’t been used since the Great Depression. We want to know if this deal creates any moral hazard for other firms who may see this government intervention as a rescue for a company that made poor decisions.
The 21st Century economy is composed of a complicated network of institutions and any action has the potential to cause a ripple effect through the entire system. Our goal of this inquiry is to better understand the ramifications of this deal from its impact on the economy to the taxpayer to the rank-and-file workers at Bear Stearns.