What's In A Bailout?

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Last week, the Agenda wondered aloud (if parenthetically) whether it's appropriate for the Federal Reserve to stay mum on the deal it brokered between JP Morgan Chase and Bear Stearns. Doesn't the public, now on the hook for up to $30 billion, have a right to know how the precise terms of the deal and who negotiated it?

Mine was a lonely voice, though, and none of the Congressional offices I contacted—specifically the banking committees and Democratic leadership in both houses—responded to my requests for comment. But while my messages weren't returned, they apparently got through. Yesterday Sen. Christopher Dodd, chair of the Senate Banking Committee, announced a hearing to examine Washington's role in arranging and structuring the merger, as well as an accounting of the assets the U.S. will take as collateral for its loan. Separately, Senate Finance Committee Chairman Max Baucus and Ranking Republican Charles Grassley sent the parties a detailed request for much of the same information, as well the names of the government and corporate officials who negotiated the deal, along with their outside advisers.

Meanwhile, the fiction that this is somehow not a bailout is getting harder to maintain. This week, JP Morgan upped its bid from $2 a share to $10 a share, meaning that the punishment meted out to Bear stockholders for the firm's reckless behavior is much less draconian. Meanwhile, the Financial Times reports that the white knight is offering bonuses to the 400-some brokers in Bear's private client division. Those who generate $250,000 to $500,000 in revenue will get bonuses equal to half that revenue, while the bonuses for the biggest rainmakers will equal their book of business. According to the Financial Times, "JPMorgan executives are particularly concerned at the disappointment felt by Bear's rank and file, many of whom are shareholders, at the low takeover price."

So much for moral hazard.

BREAKING NEWS UPDATE, 6:00 PM: Shortly after publishing this entry, the financial wires reported that Bear Stearns CEO James Cayne sold his stake in the company today. The gain to Cayne, who famously whiled away his company's collapse playing bridge: $61.3 million. Such are the wages of recklessness.