Wednesday, March 26, 2008

Letter from the senate.

Senators' Letters on Bear Deal
March 26, 2008 3:52 p.m.
The following is the text of two letters sent from leading senators regarding Bear Stearns-J.P. Morgan deal. The first is from Sen. Christopher Dodd (D., Conn.), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, inviting key players in the deal to a hearing on April 3rd. The second is a request for information from Senate Finance Committee Chairman Max Baucus (D., Mont.) and the panel's top Republican, Sen. Charles Grassley of Iowa.

Invited Witnesses:

The Honorable Ben Bernanke
Chairman, Federal Reserve Board of Governors

The Honorable Henry M. Paulson
Secretary of the Treasury

The Honorable Christopher Cox
Chairman, U.S. Securities and Exchange Commission

Timothy F. Geithner
President, Federal Reserve Bank of New York

Alan Schwartz
President and CEO, Bear Stearns

James Dimon
Chairman and CEO, JPMorgan Chase

I am writing you to request your appearance before the United States Senate Committee on Banking, Housing, and Urban Affairs next Thursday, April 3rd, at 10:00 a.m. regarding the ongoing crisis in the U.S. credit markets and one of its outgrowths, the merger agreement and subsequent amended agreement regarding JPMorgan Chase's acquisition of Bear Stearns. Ensuring the strength and orderly functioning of our nation's markets is one of this Committee's primary responsibilities. I believe it is important to maintain liquidity, stability, and investor confidence in the markets. In that regard, the unprecedented nature of some recent actions by the Federal Reserve, Department of the Treasury, and others merits a full and public examination by the Committee. In particular, it is important to examine the role of the Federal Reserve Board, the Treasury Department, and the Securities and Exchange Commission in extending a $30 billion public loan to facilitate the merger between JPMorgan Chase and Bear Stearns, and the implications of this loan for taxpayers, investors, and the regulation of entities that receive such taxpayer-backed benefits.

Had the merger between JPMorgan Chase and Bear Stearns been a routine transaction between two private entities, such an event might not merit public examination. But because this transaction has put public funds at risk, Committee review is not only warranted, but necessary. Accordingly, we ask that your testimony address the following issues: What is your understanding of the role of the Federal Reserve, Treasury, and Securities and Exchange Commission in determining the need for this transaction, placing a value on the transaction, structuring the public loan to support the transaction, and in approving the original and updated terms of the transaction?

The Committee also seeks a thorough accounting of the securities assets that the Federal Reserve is guaranteeing with public funds, including a chronology and rationale behind the selection of those assets, and the valuation of those assets. Finally, given the exposure of public funds as a source of financing in support of the JPMorgan Chase-Bear Stearns transaction, we would welcome your views regarding the implications of these actions on the American taxpayer, and what possible changes these actions may or should herald for the Federal Reserve in its role as a lender of last resort and for the regulation of financial institutions.


Christopher J. Dodd, Chairman

The following is the letter from Sens. Baucus and Grassley.

March 26, 2008

Mr. Alan D. Schwartz

Mr. James Dimon

Mr. Timothy F. Geithner

The Honorable Ben S. Bernanke

The Honorable Henry M. Paulson, Jr.


Since its establishment as a permanent committee on December 10, 1816, the Senate Finance Committee's jurisdiction has generally included "bonded debt of the United States."

In carrying out the Finance Committee's oversight responsibilities with respect to the use of bonded debt of the United States, we instructed our staff to review the details of the Bear Stearns-JPMorgan Chase transaction as announced on March 16, 2008, and as may have been or may be in the process of being amended ("the transaction"). We appreciate the briefings provided to our staff by national Federal Reserve staff and Treasury Department staff. We anticipate further staff discussions with the parties to the transaction and Federal officials.

As we take the next steps in our review, we have several preliminary questions and requests of the parties to the Bear Stearns-JPMorgan Chase transaction.

1. Please provide us with a memorandum on the transaction detailing all steps taken to date and steps that remain to be taken. Please include all pertinent dates.

2. Please provide us with a memorandum describing the assets to be secured by the Federal Reserve in relation to the transaction, including, but not limited to the type of assets, face value and book value of the assets, types of mortgages underlying the assets (e.g., adjustable rate, alt-A, subprime, etc.).

3. Please confirm all the parties (including private and government agencies that participated in negotiations) (collectively referred to herein as "Parties") to the transaction.

4. Please provide us with copies of all documents that have been or that the parties intend to file with the U.S. Securities and Exchange Commission or any other regulatory body and any term sheets that relate to the transaction.

5. Please provide us with the names of all the negotiators who represented the Parties to the transaction.

6. Please provide us with the names of all in-house counsel, outside counsel, accountants, employees and any other professionals who represented the Parties to the transaction.

Please respond by close of business on March 28, 2008. The answers and requested materials should be delivered to the committee office and addressed to Russ Sullivan, Staff Director, Democratic Staff, and Kolan Davis, Staff Director, Republican Staff, Senate Finance Committee…. In advance, we express our appreciation for your cooperation and look forward to working with you on this matter.


Max Baucus, Chairman

Charles E. Grassley, Ranking Member

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