Congress is looking into the Federal Reserve-backed agreement to sell Bear Stearns to J.P. Morgan Chase, examining the deal to see whether it complied with federal regulations and seeking to determine taxpayer exposure, The Wall Street Journal reported Thursday.
Rep. Henry Waxman, D-Calif., who heads the House Oversight and Government Reform Committee, wants to take a closer look at what the potential taxpayer exposure may be, the paper reported, citing an unnamed Waxman staffer.
"The dramatic and unprecedented actions over the weekend by the Federal Reserve and by the Treasury will be just the first of numerous private and public steps to preserve liquidity in the market and to facilitate rational actions to strengthen the economy," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, in a statement released to MarketWatch.
"These actions could either implicate or involve securities and tax laws, and I am working to determine whether and to what extent that is the case."
The Senate Finance Committee has announced it will conduct its own investigation into the bailout. Sen. Chuck Grassley, R-Iowa, a ranking member of the committee, weighed in on the inquiry Thursday.
"I've instructed my staff to delve into the details of the deal; I want to understand what the downside risk for the taxpayer is and any upside potential," he said in a statement. "Corporate bigwigs shouldn't be able to profit from a deal while employees, shareholders and creditors have to carry the burden of a company's demise."
The Fed agreed Sunday to provide financing for up to $30 billion of less-liquid assets held by Bear Stearns (BSC:The Bear Stearns Companies Inc
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BSC 11.54, +5.58, +93.6%) . Roughly $20 billion of that funding is earmarked to back mortgage securities.
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JPM 47.13, +1.16, +2.5%) is set to exchange 0.05473 of a share of common stock for each share of Bear Stearns. Both boards have approved the transaction, which values Bear Stearns at $2 a share.
Many investors have cried foul at that sale price, saying even if Bear was facing bankruptcy, its headquarters in New York City alone were worth far more than the $237 million takeout value.
Lawmakers appear to agree with that assertion.
"My point is not that bankruptcy would've been the better course for Bear Stearns," Grassley said. "The top executives shouldn't be treated better than anyone else when a company goes under."
Waxman has made headlines recently for conducting high-profile probes into the disparity between pay and performance for executives of financial institutions.
On Thursday, Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, called on lawmakers Thursday morning to find new ways to stabilize the economy.
Frank suggested reforming the regulatory system currently in place, as well as re-examining what capital means in today's economy and monitoring auction-rate securities and municipal-bond markets more closely.
"Ultimately," Baucus said, "Congress has a duty to respond appropriately to increasing bad news in the economy."
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