Tester questions bank bailout

Billings Gazette

by Noelle Straub

WASHINGTON – Wondering just how wide the federal wallet might open for Wall Street, Sen. Jon Tester questioned the head of the Federal Reserve on Thursday over how much taxpayer money it would use to bail out troubled firms.

"The question is, would the Federal Reserve agree to this situation if it were to cost $50 billion, or $100 billion?" the Montana Democrat asked at a Senate Banking Committee hearing. "At what point do you say no?"

The Federal Reserve committed $29 billion in taxpayer money to back the assets of investment bank Bear Sterns so that JPMorgan Chase & Co. would buy the bank. Federal Reserve Chairman Ben Bernanke said the price was negotiated.

"We think we got a good deal," Bernanke said. "We didn't spend $29 billion, we lent it against collateral. We believe we will recover most or all of it, probably all of it. It was again a very important consideration to try to make sure that this failure didn't occur."

He added, "In the future, I think, however, we should take actions to make sure that these problems don't arise again."

Tester, who sits on the Banking Committee, asked if the Fed would use more taxpayer money in the future. "If another investment bank, similar size, were in the same situation tomorrow, would you duplicate your effort?"

"The situation has, I believe, improved now, and we have put in place these liquidity facilities and we are monitoring … the condition of these banks," Bernanke replied. "It was a very unusual situation. I don't expect it to happen again. But if any situation arises which threatens the integrity of the U.S. financial system, we would have to try to address it the best we could."

Tester questioned why JP Morgan Chase needed federal help and wouldn't just accept the collateral on its own. Bernanke said JP Morgan Chase was worried about risk and liquidity, while the Fed doesn't have "any problem in financing the assets and we could afford to hold them for a period and dispose of them in a more orderly way."

Tester also asked the chairman of the Securities and Exchange Commission, Christopher Cox, if he knew of the possibility of suspicious stock trading in early March that might have helped bring down Bear Stearns.

"The SEC very aggressively pursues insider trading, market manipulation and the kinds of illegal naked short-selling that have been very publicly alleged in this case," Cox said.

The senator also asked both witnesses exactly when they knew that "we were in a situation where one of the world's largest investment banks is teetering on insolvency."

Bernanke said the bank received notice of about 24 hours that Bear Sterns was anticipating bankruptcy.

Tester has criticized the Bush administration for putting a "larger priority" on helping Wall Street bankers than helping the average working family.