Mortgage securities assumed by Fed as part of Bear Stearns-JPMorgan deal, Treasury letter confirms.
April 1, 2008: 5:22 PM EDT
WASHINGTON (AP) -- The Federal Reserve is taking on mortgage-backed securities and other investments as part of its $29 billion rescue of Bear Stearns, a government official confirmed in a letter to Congress.
The Federal Reserve Bank of New York's loan to JPMorgan Chase & Co. (JPM, Fortune 500), which has proposed to buy Bear Stearns Cos. (BSC, Fortune 500) in a government-engineered plan, is being secured by a "pool of assets consisting primarily of mortgage backed securities and related hedge investments," said the March 28 letter by Kevin Fromer, the Treasury Department's assistant secretary for legislative affairs.
The letter was released Tuesday by the Senate Finance Committee's staff. It confirmed the widely reported, but yet-to-be officially acknowledged details of last month's agreement.
The Fed extended the lifeline as part of JPMorgan's eleventh-hour deal to buy out the troubled Bear Stearns, the nation's fifth largest investment house.
Supporters of the Fed's role say it was needed to prevent a panic from spreading on Wall Street that could have derailed the overall economy, but some lawmakers have raised concerns that the Fed, and ultimately U.S. taxpayers, could wind up on the hook.
If there are losses on those assets, JPMorgan has agreed to take responsibility for the first $1 billion, with the Fed absorbing the rest.
Federal Reserve Chairman Ben Bernanke met privately Tuesday with House Republicans, a day before he is slated to deliver a fresh assessment of economic conditions to Capitol Hill. Bernanke is scheduled to testify at a 9:30 a.m. EDT hearing of the Joint Economic Committee.
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