Senators Question Bear Stearns Bail Out

by D. Cupples |   Senators Max Baucus (D-MT) and Charles Grassley (R-IA) are wondering about the details of the proposed, $30 billion Bear Stearns bailout. The consequences of the government's not intervening would likely take a nasty toll on our already-troubled economy, but it's nice to know that someone wants to guard the taxpayers' money pot -- especially Sen. Grassley, who investigated the FDA with a pit bull's tenacity.  The Hill reports:

"In a joint letter, [Senate Finance] committee Chairman Max Baucus (D-Mont.) and ranking Republican Chuck Grassley (R-Iowa) asked the key players in the deal for information about the negotiations and the final agreement."

"Specifically, the senators want a 'memorandum on the transaction detailing all steps taken to date and steps that remain to be taken,' a list of all of the parties and their negotiators involved, and '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.”

"The letter was sent to the CEOs of the two companies, as well as to Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Timothy F. Geithner, the president and CEO of the Federal Reserve Bank of New York.

“'Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars. 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 Bear Stearns deal, and to monitor the changing terms of the sale,' Baucus said. '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.'” (The Hill)

 

Comments

[Adam]

If you want to play the "cui bono" game, just look at JP Morgan Chase stock, which has gone up something like 40% since the government decided to hand them a thirty billion dollar insurance policy.

1) The Fed went too far in backing JPM.
2) If the fed is going to protect the investments of companies like Bear Stearns as if they were banks, then they should be regulated like banks.

[Adam]

Great speech by Obama on the financial markets:

http://weblogs.chicagotribune.com/news/politics/blog/2008/03/obama_economy_is_in_recession.html#more

In the middle of the speech he lays out six specific "principles" for reforming the financial markets. I think they are all really solid ideas. Several of them touch on my earlier comment.

[D. Cupples]

Adam,

I've never been a Bill Clinton fan, though I am a Hillary fan. The reason: Bill was involved in the repeal of Glass-Steagall and in the passing of the Telecom Act of '96. I agree with Obama's assessment re: those things.

Axing Glass-Steagall is what enabled the WorldCom and similar crises. Passing the Telecom Act enabled consolidation of media ownership.

People have been calling for another Glass-Steagal-type regulation ever since WorldCom.

About Obama's speech: here are my reactions to the six principles for re-regulating the financial markets.

Number 1: I agree with this.

Number 2: I agree with this (though, from the text, I get the impression that he wants to sound like he knows what he's talking about but actually doesn't).

Number 3: he fumbled here, using impressive-sounding language. If he means that he wants to consolidate SOME regulatory activities, I agree with him.

Number 4: I don't know about banking regulations, so I don't know if I agree with him.

Number 5: The SEC already has broad authority to crack down on market manipulation. The problem is that the SEC is under-staffed, because it's been perpetually under-funded.

Number 6: creating an oversight commission is iffy. I'd have to know more specifics to know whether I agree with him or not.

The first 7 paragraphs of the speech are fluff.

He's right about de-regulation (one root cause of today's probs).

I think he's wrong about why people called for de-regulation (esp. of the securities markets). They wanted it not as a reaction to high "New Deal" taxes but because they wanted to be able to dupe ordinary investors. Period.

Remember, before the Securities Act (1933) and Exchange Act (1934) the federal gov didn't regulate securities at all. This left the markets open for snake oil salesman. They didn't like having a referee tell them they couldn't screw ordinary investors.

He's right about Enron and WorldCom.

He's wrong when saying that such scandals weren't the "invisible hand" at work but instead lobbyists anc corrupt politicians -- in the sense that free-market ideology is all about getting rid of regulations. It WAS the invisible hand at work.

In that part of the speech, Obama is trying to be a little bit pregnant -- telling voters he wants to regulate, while simultaneously letting industry types know that he's not against the so-called "free market."

In this context, you can't be both. There is NO compromise. Our government either has regulations re: a particular subject or doesn't.

Self-regulation doesn't work: if it did, many of the scandals we've seen wouldn't have happened.

See, I don't disagree with Obama on everything.

I do find it ironic that he left that speech and went to a fund raiser sponsored by Credit Suisse (one of the institutions caught up in the fraudulent mortgage-investing schemes).