Rep. Waxman Probes BlackRock's Role in Fed-Bear Stearns Deal
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The House's investigative bulldog wants to know more about the company that is handling the $29 billion being put up by the nation's central bank to back the buyout of Bear Stearns Cos.
Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee, wrote a letter to New York Fed Governor Timothy Geithner to inquire about the selection of BlackRock Financial Management Inc. as the asset manager for the deal that allowed JPMorgan Chase & Co. to purchase Bear Stearns at bargain-basement price.
When bank managers feared investment bank Bear Stearns' collapse, the Fed put together the emergency deal to avoid a Wall Street-wide panic. Bear Stearns was hamstrung by heavy investments in shaky mortgage-backed securities.
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"Only limited details are known about the Federal Reserve's understandings with BlackRock. It appears, however, that BlackRock is now directly responsible for managing a $30 billion portfolio on behalf of the American taxpayer," Waxman wrote.
"If BlackRock does its job well, the taxpayers will be made whole or even experience a gain. If BlackRock is not successful, the taxpayers stand to lose billions of dollars. In effect, it appears that BlackRock is serving as a government contractor providing complex financial services to the Federal Reserve," Waxman said.
Waxman said he wants to know how the Fed came to select BlackRock, which appears to have secured a long-term deal with the Fed without competition usually sought in a government bid. Waxman said he also wants to know more about what compensation BlackRock will receive in exchange for its work.
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Geithner's "testimony before the Senate Banking Committee offered few specifics" about the deal, Waxman said.
Detailing a half-dozen specific questions about the deal, Waxman asked for a response by April 18.
FOX News' Chad Pergram contributed to this report.