JW Uncovers Documents from Treasury Related to Government-Brokered Acquisition of Bear Stearns by JP Morgan
Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it has uncovered documents from the Treasury Department related to the March 2008 government-brokered acquisition of Wall Street firm Bear Stearns by JP Morgan Chase and Co. The documents include “confidential” term sheets describing the deal, released to the public for the first time, along with behind-the-scenes email correspondence between Treasury officials indicating that JP Morgan officials believed Bear Stearns to be “nearly worthless” just hours before the acquisition deal was announced. The documents were obtained by Judicial Watch in response to a December 8, 2008, Freedom of Information Act (FOIA) request.
On Sunday, March 16, 2008, JP Morgan announced that it had acquired troubled Wall Street firm Bear Stearns for a price of $2 per share, a fraction of the firm’s $30 market price on Friday, March 14. The Federal Reserve Bank of New York (NY FRB) supported the deal with $30 billion in funding at the direction of then-Treasury Secretary Henry “Hank” Paulson.
In addition to the “confidential” term sheets uncovered by Judicial Watch, the documents also include email correspondence indicating that the acquisition of Bear Stearns was very much in doubt just hours before the deal was announced to the press on Sunday night, March 16. According to an email sent Sunday morning by NY FRB official Michael Holscher to then-head of the NY FRB and current Treasury Secretary Timothy Geithner, entitled “JPM Findings”:
JPM [JP Morgan] has discovered a large (50bn) structured mortgage position funded by BSC [Bear Stearns Capital], as well as other risk positions that are making them balk on the deal. I have asked for a report on their findings to assess the exposures. They also indicated that BSC’s risk positions are exactly what JPM has avoided in recent years. They estimate the book value of the firm to be nearly worthless…and that risks on other unknowns are to the downside. They inquired about options that the federal government may have to bail out/purchase BSC, we indicated that options are extremely limited.
Ultimately JP Morgan received the guarantees it needed from the Treasury Department to consummate the deal to obtain the “worthless” Bear Stearns later that evening. These FOIA documents were initially withheld from Judicial Watch in March and were only released after an administrative appeal to the Treasury Department. Nonetheless, Treasury has redacted information from many of these new documents and withheld many documents in their entirety. Separately, Judicial Watch is pursuing a FOIA lawsuit for Vern McKinley, who is seeking documents on the government’s contention that a Bear Sterns’ collapse would have caused a “contagion” in the financial system. This lawsuit was highlighted in a September 13 editorial in The Wall Street Journal.
“The public has a right to know the full truth about the federal government’s unprecedented intervention into the financial markets, and that is what we are delivering through our open records requests. These Treasury documents, despite the improper redactions, provide a fascinating backdrop to the Bear Stearns deal, and what a scam it was. The federal government’s $30 billion Bear Stearns bailout was designed to help stave off chaos in the financial markets. And this bailout did nothing to stave off the economic crisis. Since Bear Stearns, the federal government has committed trillions of taxpayer dollars to prop up other ‘worthless’ financial institutions with no end in sight,” stated Judicial Watch President Tom Fitton.
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