March 20,2008

Grassley Explores Consequences of Bear Stearns Deal for Taxpayers, Company Insiders


To: Reporters and Editors
Re: Bear Stearns deal
Da: Thursday, March 20, 2008

Sen. Chuck Grassley, ranking member of the Committee on Finance, with jurisdiction overtax policy, is interested in details of the Federal Reserve’s agreement to lend $30 billion to helpBear Stearns, and about the actions of company executives. Grassley made the following commenton the issue.

“I’ve instructed my staff to delve into the details of the deal. I want to understand what thedownside risk for the taxpayer is and any upside potential. I’ve asked staff to compare this actionto recent actions by Treasury and/or the Fed to intervene in financial troubles. For instance, in 1994and 1995, the Clinton Administration Treasury helped alleviate the Mexican bond crisis by settingup a 1930s-era revolving fund to the tune of $20 billion to $30 billion. Treasury used $13.5 billionof the fund and made money on the transaction. Is there any upside for taxpayers in the Bear Stearnsdeal?

“Another long-time interest of mine is how insiders such as senior executives are treated inthese kinds of deals. Corporate bigwigs shouldn’t be able to profit from a deal while employees,shareholders, and creditors have to carry the burden of a company’s demise. For example, duringthe Sarbanes-Oxley floor debate, I had an amendment that would’ve tightened the preferentialtransfer rules for corporate officers and directors when a company goes bankrupt to help police prefilingmischief. This is an angle of the bankruptcy law that protects creditors, large and small, andothers from abuse of bankruptcy by corporate insiders. I’m having my staff inquire about how theBear Stearns insiders are being treated under this deal and whether they’ll come out better than ifBear Stearns had gone into bankruptcy. My point is not that bankruptcy would’ve been the bettercourse for Bear Stearns. I’m looking at a slice of the consequences. The top executives shouldn’tbe treated better than anyone else when a company goes under.”