Tester grills economy chief on $30 billion bank bailout
Fed Chairman agrees actions are needed to prevent future problems
(WASHINGTON, D.C.) – The nation's top economist today told Senator Jon Tester that the Federal Reserve Board should take action to make sure problems relating to the government's nearly $30 billion bailout of troubled investment bank Bear Stearns don't arise again.
Tester grilled Federal Reserve Chairman Ben Bernanke during a hearing of the Senate Banking Committee today in Washington. Tester requested the hearing to question the government's role in the controversial bailout—a move that has concerned many Montanans in recent weeks.
The Federal Reserve Board, which is in charge of the nation's banking policy and answers to Congress, agreed to risk a nearly $30 billion loan to support JPMorgan Chase's takeover of Bear Stearns last month. The decision was made without input or oversight from Congress.
"Would the Federal Reserve agree to this situation if it were to cost $50 billion? Or $100 billion?" Tester asked Bernanke this morning. Bernanke responded by saying he's confident the Fed will recover most—if not all—of the $29 billion loan.
"In the future I think we should, however, take actions to make sure these problems don't arise again," Bernanke told Tester.
Tester followed up by asking if the Fed would make a similar emergency loan if another Wall Street bank were to collapse. Bernanke answered by calling the Bear Stearns bailout a "very unusual situation."
"Don't expect it to happen again," Bernanke said. "But if any situation arises which threatens the integrity of the U.S. financial system, we would have to try to address it as best we could."
Throughout the hearing, Bernanke said failing to help Bear Stearns—the nation's fifth-largest investment bank—would have resulted in serious consequences for the national economy.
During a speech on the Senate floor yesterday, Tester criticized the Bush Administration for putting "a larger priority in taking care of Wall Street's big bankers than the millions of folks who are struggling to pay the bills, make their mortgages, save for their children's college tuition or invest some money for a secure retirement."
Other witnesses who testified during today's hearing included:
- U.S. Securities and Exchange Commission Chairman Christopher Cox.
- Federal Reserve Bank of New York President Timothy Geithner.
- Under Secretary of the Treasury for Domestic Finance Robert Steel.
- JPMorgan Chase Chairman and CEO James Dimon.
- Bear Stearns President and CEO Alan Schwartz.