At last Thursday’s Senate Banking Committee hearing on the government’s historic bailout of Bear Stearns, two questions were expected. Who set the initial bargain basement price of $2 a share for the investment bank? Who picked JPMorgan Chase as the fortunate buyer? Those questions were not clearly asked, and were not answered at all.
The hearing, transferred from the Banking Committee’s cozy quarters to spacious Room G-50 in the Dirksen Senate Office Building, was televised and attracted a packed audience. Details of the government’s extraordinary intervention promised a tense interrogation. But this was not the customary confrontation between lame-duck Republican officials and majority congressional Democrats. On either side of the table were brothers, as if Wall Street had moved to Washington.
While conservatives inside the administration are unhappy about intervention in markets, President Bush seems content with how the Federal Reserve and Treasury cooked up the deal with erstwhile colleagues in Wall Street. There is little conservative or Republican about the administration’s approach to the fiscal crisis, as reflected in Room G-50. Uncritical Democratic senators were not even inquisitive.
The closest a senator came to asking who set the price for JPMorgan was this apologetic question from Committee Chairman Christopher Dodd: “There’s just reports — I want to share them with you — that JPMorgan Chase would make an offer of $4 a share. … Did you or anyone in your agency provide feedback to JPMorgan or Bear Stearns on the value of that offer?”
Federal Reserve Chairman Ben Bernanke said there was no “interjection” by the Fed “to my knowledge.” “There was a view,” said Treasury Under Secretary Robert Steel, “that the price should not be very high.” But Steel quickly added, “With regards to the specifics, the actual deal was negotiated” by the New York Federal Reserve Bank. Timothy Geithner, president of the New York Fed, then said: “Let me just echo what the chairman (Bernanke) and Bob Steel said” — which was nothing. “We did not set or negotiate the price,” Geithner said later. But who did? Senators did not demand to find out and did not inquire how JPMorgan was selected.
Dodd is renowned as a fierce interrogator of hard-line Bush foreign policy officials, but no John Bolton faced him last Thursday. Bernanke, without Republican credentials, was mostly a potted palm at the hearing. He deferred to the 46-year-old Geithner, another non-Republican advocated for the New York Fed post by his mentor, Clinton Treasury Secretary and Wall Street lion Robert Rubin. Just before the 2004 election, the National Journal listed Geithner (heading the New York Fed for less than a year) as an adviser to Democratic presidential candidate John Kerry.
The Treasury’s Steel, a Dodd constituent as a Greenwich, Conn., resident, is a political switch-hitter contributing to both parties. His Democratic recipients include John Edwards, Jon Corzine, Evan Bayh, Tom Strickland and Erskine Bowles. He was brought to Washington by his boss at Goldman Sachs, Henry Paulson, who was Rubin’s colleague and successor as CEO there. The only undiluted Republican at the witness table was Christopher Cox, Securities and Exchange Commission (SEC) chairman.
Sen. Charles Schumer is a fiercely partisan Democrat but regards Wall Street as part of his New York constituency. He raises campaign money from the securities industry, and his friends include Tim Geithner. Schumer treated Geithner gently last week, and the only witness he interrupted was Cox. “Something is wrong with our regulatory structure,” said Schumer. Since the SEC was the regulator, he implied the Republican witness was the guilty party.
The senators could have criticized the Federal Reserve for approving the bailout with just four votes on the Board of Governors, instead of the five formerly required by law. The vote was legal because of legislation after 9-11 to cope with a national security emergency. This was no such emergency. Frederic Mishkin, a former business school professor in his second year as a governor, merely missed the vote. But Democratic senators could not complain. The Fed is down to five members because the Senate refuses to confirm Bush’s nominees for three vacancies, waiting for a Democratic president to name governors who are even friendlier than the present board.