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Senate to hold hearing on Bear Stearns takeover

Don’t expect any real action. My hunch is that somebody’s beak didn’t get wet:

A US Senate panel Wednesday set a hearing on the takeover of troubled investment bank Bear Stearns as lawmakers voiced concern about the government’s unusual role in the rescue.

Senator Christopher Dodd said the banking committee he chairs will hold a public hearing into the controversial takeover next Thursday. He invited top officials, including Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson to testify on the deal.

The large investment firm JPMorgan Chase led a takeover bid for Bear Stearns, presently valued at over one billion dollars, following the Wall Street bank’s near collapse earlier this month.

The US Federal Reserve is guaranteeing 29 billion dollars to help support the takeover.

The $2-a-share sale price first announced was a boardroom mugging, especially because the Fed announced that special financing would be made available to investment banks (like Bear Stearns) for the first time since the Great Depression — but only after it forced Bear Stearns into the takeover deal.

Needless to say, Bear insiders were unhappy.

Had Bear known it might have access to the discount window — a crucial source of liquidity — it might have been able to hold out for a couple more days or at least had enough leverage to seek a higher bid. But the Fed clearly preferred the original bid.

Inside Bear, jaws dropped at what many considered a broad deception by the Fed. Alan D. Schwartz, Bear’s chief executive, was furious, as was the board and its team of advisers. Several JPMorgan executives even offered their apologies about the way the deal “went down.”

Of course, shareholders were even more irate, describing the deal in unprintable terms. In effect, they revolted against the terms of the deal — and both JPMorgan and the Fed wound up having to mollify them by raising the price.

Some questions need to be asked: What right does the Fed have in putting together deals like this? For that matter, why is the Fed in the deal-making business at all? Especially a deal that ignores or violates a number of bank and stock market rules and precedents.

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