Senate Panel Launches Inquiry Into Bear Stearns Bailout

In yet another sign that the faltering economy will dominate the congressional agenda when lawmakers return from recess next week, the Senate Finance Committee has started an inquiry into the bailout of banking giant Bear Stearns.

Both Chairman Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) cosigned a letter to to executives at JP Morgan, Bear Stearns and the Federal Reserve asking for all the documents, pricing details and other data that led to the Fed's $30 billion loan, which allowed JP Morgan to buy out Bear Stearns at a bargain basement price.

While the Finance Committee heads aren't implying there was any wrongdoing, they are intent on shining some light on the dramatic Fed maneuver, which Baucus called a "taxpayer backed sale."

"Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars," Baucus said. "With jurisdiction over federal debt, it’s the Finance Committee’s responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars for the Bear Stearns deal."

The senators have asked for the pricing details, the names of the executives involved in the transaction, and more specifics about exactly what assets the Fed agreed to back with its $30 billion loan. The committee appears to be skeptical of the quick repricing of the Bear Stearns deal, which jumped from $236 million to more than $2 billion in a matter of days.

The committee has set a March 28 deadline for the two banks, plus the Fed, to provide all the documents and financial details behind the transaction, but no hearings have yet been set on the issue.

"Congress has a responsibility to look at whether the taxpayers will lose money here, what kind of precedent this sets for federal involvement when other firms over-extend themselves, how this will affect the marketplace," Grassley said.

Grassley said it's also important to know "whether top executives will come out better than the rank-and-file workers who weren’t in the room negotiating the deal.”