Two key senators are demanding details of the last-minute sale of failing investment bank Bear Stearns to JP Morgan, and how the Federal Reserve Bank's backing for the deal could affect taxpayers.
Sen. Max Baucus, D-Mont., the Finance Committee chairman, and Sen. Charles E. Grassley of Iowa, the panel's top Republican, wrote Wednesday to executives of both firms, Treasury Secretary Henry M. Paulson and Fed Chairman Benjamin S. Bernanke seeking specifics of the transaction by week's end. They said they wanted answers on how taxpayers would fare under the deal, which the Fed helped broker and guarantee in an extraordinary move aimed at preventing a meltdown of the U.S. financial system.
The move was another sign that Congress, racing to deal with a housing mess that encapsulates voters' deep concerns about the economy, has placed the financial crisis at the top of the election-year agenda, with investigations and sweeping legislation likely to follow.
"Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars," Baucus said in a statement. "Economic times are tight on Main Street as well as on Wall Street, and we have a responsibility to all taxpayers to review the details of this deal."
Grassley said, "Congress has a responsibility to look at whether the taxpayers will lose money here, what kind of precedent this sets for federal involvement when other firms over-extend themselves, how this will affect the marketplace in other direct and indirect ways, and whether top executives will come out better than the rank-and-file workers who weren't in the room negotiating the deal."
The senators asked for, among other things, details on the assets the Fed took on in the deal, the names of those — including government agencies — who negotiated it, attorneys involved, and copies of all the relevant documents.
The Fed agreed to provide an important multibillion financial lifeline for the transaction. In addition, in the broadest use of its lending authority since the 1930s, the central bank said it would let squeezed Wall Street investment houses go directly to the Fed for emergency loans. That has long been a privilege just for commercial banks.
The letter came as Paulson said the Bear Stearns takeover highlighted the need for stronger and clearer regulation of big financial institutions. He said Wednesday that he "fully supported" the Fed's action, but that it also raises important policy considerations about the oversight of investment houses.
The Finance panel oversees U.S. debt and the Treasury-backed securities that were used to guarantee the Bear Stearns-JP Morgan sale.
Rep. Barney Frank, D-Mass., and Sen. Christopher J. Dodd, D-Conn., who head the congressional committees that deal with banking and housing issues, are working on sweeping housing overhauls in response to the recent financial woes.
The Senate is expected to vote next week on a housing aid package — vehemently opposed by the Bush administration and congressional Republicans — that would, among other things, allow bankruptcy judges to adjust the amount owed and interest rates on mortgages of struggling homeowners.