WASHINGTON (AFP) - A US Senate panel Wednesday set a hearing on the takeover of troubled investment bank Bear Stearns as lawmakers voiced concern about the government's unusual role in the rescue.
Senator Christopher Dodd said the banking committee he chairs will hold a public hearing into the controversial takeover next Thursday. He invited top officials, including Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson to testify on the deal.
The large investment firm JPMorgan Chase led a takeover bid for Bear Stearns, presently valued at over one billion dollars, following the Wall Street bank's near collapse earlier this month.
The US Federal Reserve is guaranteeing 29 billion dollars to help support the takeover.
The banks have said that Bear Stearns will give the Federal Reserve collateral, some of which consists of mortgage-backed securities, in return for its official support which marks a highly unusual level of government involvement.
"The sale agreement between JPMorgan Chase and Bear Stearns raises serious public policy questions regarding the role played by the Federal Reserve, Treasury, and Securities and Exchange Commission as facilitators of this agreement," Dodd said in a statement.
The Democratic senator has sent letters to Bernanke, Paulson, SEC chairman Christopher Cox, Bear Stearns chief executive Alan Schwartz, JPMorgan Chase chairman and CEO James Dimon requesting they appear before Congress next Thursday to answer lawmakers questions about the takeover.
Dodd said in the letter, a copy of which was released to the media, that he had called a hearing because public funds "are at risk" under the deal's terms.
Critics have asked why the Fed does not help bail out other troubled American companies, but supporters of the takeover say Bear Stearns' collapse could have triggered a domino effect within the US banking system which is already reeling from a deepening credit squeeze.
Other powerful lawmakers have also started to probe the transaction.
The Democratic chairman of the Senate Finance Committee, Max Baucus, wrote to Bernanke, Paulson and other officials Wednesday also seeking more information on the takeover and whether taxpayer funds are being used.
"Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars," Baucus said.
The senator said Congress has the power to investigate how federal funds are used and said the panel was also seeking to discover why the central bank is backing the deal to the tune of 29 billion dollars.
A spokeswoman for the committee said Baucus and other lawmakers will be keen to review the responses to their inquiries, but said they have not planned a public hearing at this stage.
"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 overextend themselves," the panel's top ranking Republican lawmaker, Chuck Grassley, said.
Baucus and Grassley want to know exactly what collateral the US central bank has accepted to partly underwrite the deal among other issues.
Bear Stearns and JPMorgan Chase first announced the takeover on March 16 days after fears gripped Wall Street that one of America's largest investment banks was on the verge of collapsing.
Other banks had stopped trading with Bear Stearns, because of its mounting losses on mortgage-backed securities tied to the US housing slump, in a move which threatened to push it into bankruptcy.
Bear Stearns' shareholders balked at the initial deal, however, because it valued Bear Stearns at a paltry 236 dollars, much less than the value of its New York headquarters alone. JPMorgan on Monday hiked its offer to over one billion dollars.
RLCC Comment: They say institutions such as Bears Stearns are too big to fail (too big to allow to fail). However, if all such large institutions know this, they will always be able to count on a bailout in which case they will always be able to be used to milk the taxpayers to further enrich the ultra-rich who plan and execute the insider trading deals known as booms and busts or the business cycle. It's all pre-arranged. The world bankers known it all in advance by knowing exact who has what money, why, where, what they're being charged for it, and how well they play along with the entire Ponzi scheme.
Yahoo! News: Politics - U.S. Senate, March 26, 2008, 2:45pm, obtained via:
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