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, BlackRockand 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 $30billion 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, thegovemment contractor providing complex financial services to the Federal Reserve.
taxpayers stand to lose billions of dollars. In effect, it appears that BlackRock is serving as a
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 taxpayersare getting the best value for their money.
Mr. Timothy F. Geithner
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 asmost 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
4. Please describe any specific plans the Federal Reserve has in place to overseeBlackRock's management of the portfolio.
Mr. Timothy F. Geithner
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.
Chairmancc: Tom Davis
Ranking Minority MemberBen S. Bernanke
Chairman, Board of Governors of the Federal Reserve System