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Apr 10, 2008

Mr. Timotþ F. Geithner

President and Chief Executive Officer

Federal Reserve Bank of New York

33 Liberry Street

New York, NY 10045

Dear Mr. Geithner:

I am writing to request that you provide the Committee on Oversight and Government

Reform with information about the selection of BlackRock Financial Management, Inc., to

manage billions in assets that now appear to belong to the federal taxpayer.

According to your testimony before the Senate Banking Committee last week, BlackRock

and its affrliates will serve the Federal Reserve as the "Asset Manager" responsible for managing

the "portfolio supporting the $29 billion loan to be extended by the Federal Réserve in

connection with the proposed acquisition of Bear Stearns by JP Morgan Chase." This portfolio,

which will be held in a limited liability company, is composed "largely of mortgage related

assets" valued by Bear Steams at a market value of $30 billion on March t4,2008.

Only limited details are known about the Federal Reserve's understandings with

BlackRock. It appears, however, that BlackRock is now directly responsible for managing a $30

billion portfolio on behalf of the American taxpayer. If BlackRock does its job well, the

taxpayers will be made whole or even experience a gain. If BlackRock is not successful, the

taxpayers stand to lose billions of dollars. In effect, it appears that BlackRock is serving as a

govemment contractor providing complex financial services to the Federal Reserve.

One question involves the award of this potentially lucrative position to BlackRockwithout

competition. In your testimony, you explained the lack of competition by citing the

extreme time constraints and the need for quick action, and I do not dispute the urgent

circumstances that the Federal Reserve faced. Typically, however, emergency no-bid contracts

have a short duration and are replaced with long-term contracts through full and open

competition. The rationale for this approach is evident: competition ensures that the taxpayers

are getting the best value for their money.

Mr. Timothy F. Geithner

April 7,2008


In this case, there is no indication that the Federal Reserve contemplates a future

competition. Instead, it appears that BlackRock may end up managing the $30 billion fund for

the Federal Reserve for up to ten years.

Another question raised by your testimony and Chairman Bernanke's testimony before

the Joint Economic Committee is the apparent lack of concrete terms with BlackRock.

Chairman Bernanke advised the Joint Economic Committee last week that "[t]he Federal

Reserve Bank of New York engaged BlackRock on a fee-to-be-determined-later basis that is to

be negotiated later." Similarly, your testimony before the Senate Banking Committee offered

few specifics about the Federal Reserve's arrangement with BlackRock.

The Committee's investigations have shown that when contract terms are not defined in

advance, it is usually the taxpayer - not the contractor - who suffers. In Iraq and in the

response to the September l1 attacks and Hurricane Katrina, taxpayers have incuned billions of

dollars in unnecessary costs when federal agencies tried to negotiate terms with a private

contractor that knows it has already won the contract. Exigent circumstances were often cited in

these cases to justiff the absence of concrete terms.

I know that the Federal Reserve is not subject to the same contracting requirements as

most federal agencies, and I recognize that the urgency of the circumstances and the complexity

of the financial arrangements may necessitate unusual ¿rrangements, so I want to assure you that

I have reached no conclusions. My goal at this point is to ensure that the Committee receives the

information it needs to fulfill its oversight responsibilities.

To further the Committee's understanding of this matter, I request you provide the

following information to the Committee:

l. Please describe the basis for BlackRock's selection as the asset manager and advisor.

2. Please describe whether the Federal Reserye's arrangement with BlackRock allows the

Federal Reserve to solicit competing bids for a portfolio manager. If the anangement

does not allow the Federal Reserve to solicit competing bids, please explain why this is in

the interest of the taxpayer. If the arrangement does allow competing bids, please explain

whether the Federal Reserve intends to solicit these bids and, if so, when and under what


3. Please provide all documents that relate to the terms and conditions of the arrangement

with BlackRock.

4. Please describe any specific plans the Federal Reserve has in place to oversee

BlackRock's management of the portfolio.

Mr. Timothy F. Geithner


Page 3

5. Please provide a list of the names of BlackRock employees who will be responsible for

managing the portfolio.

6. Please explain whether the Federal Reserve has examined BlackRock's ownership

structure, investment portfolio, and other activities, such as its involvement with entities

seeking to accumulate distressed mortgages, to screen for potential conflicts of interest.

In particular, please address whether any BlackRock-supported ventures or board

members are pursuing business goals that might conflict with management of the


I request that you provide this information to the Committee by April 18, 2008.

The Committee on Oversight and Government Reform is the principal oversight

committee in the House of Representatives and has broad oversight jurisdiction as set forth in

House Rule X.

If you have any questions regarding this letter, please contact Roger Sherman or Alison

Cassady of the Committee staff at (202)225-505t.

Sincerely, ficù,^-

Henry A.'Waxman


cc: Tom Davis

Ranking Minority Member

Ben S. Bernanke

Chairman, Board of Governors of the Federal Reserve System

Visibility: Everyone
Posted: Thursday April 10, 2008, 2:15 pm
Tags: oversite committeeblackrocktaxpayerfederal reserveinvestigations [add/edit tags]

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