[This week, BlackCommentator.com welcomes Lloyd Wynn as a BC Columnist with his column, Smoke and Mirrors.]

In light of hearings held by the Senate Banking Committee into the sale of Bear Stearns, I feel compelled to give you another story behind this transaction that the Federal Reserve and the Security and Exchange Commission are not telling you. The company called BlackRock, Inc, selected by the Federal Reserve as financial advisor on the Bear Stearns deal, emerged to play a prominent role in the valuation and disposition of the $30 billion portfolio Bear Stearns pledged as collateral. BlackRock, Inc. is the world’s largest publicly traded investment management firm and has approximately $1.3 trillion assets under management. The company came into existence in1988 as a unit of the Blackstone Group under current CEO, Laurence Fink.

It is deeply troubling that BlackRock, Inc. was selected as the financial advisor to the Federal Reserve on the sale of Bear Stearns. First, BlackRock’s selection is not inconsistent with the way the Bush Administration has awarded no-bid contracts to their friends and financial contributors. The exigent circumstances which influenced the Fed to ask BlackRock to evaluate the portfolio used as collateral in this deal is understandable but any additional financial services beyond that critical weekend of March 16th should have followed bidding protocol. After all, the taxpayers are ultimately responsible for the bill.

Next, BlackRock, Inc. in conjunction with Highfields Capital Management, has launched a new company called Private Mortgage National Acceptance Corp. (PennyMac). The stated purpose of this joint venture is to buy non-performing (delinquent) mortgages cheaply, then resell them at a huge profit. BlackRock, through its engagement with the Federal Reserve, now has access to $30 billion of loans from the questionable Bear Stearns transaction. Any of the loans not performing in the Bear Stearns portfolio can be transferred or sold to PennyMac. It would be prudent if the Federal Reserve stipulates that none of the assets in the Bear Stearns portfolio should be transferred to PennyMac but that is asking too much since the interest of taxpayers is next-to-last on the Fed’s list of priorities.

Equally unsettling is the fact that none of the 21 members of the Senate Banking Committee asked one question about this new joint venture. PennyMac’s senior management is comprised of former Countrywide employees. In fact, eight of the top twelve positions at PennyMac are occupied by former Countrywide officials, including the CEO and CIO. America is in the midst of the worst financial debacle since the depression, in no small part, due to Countrywide’s lending practices and now some of the same officials are about to profit from the crisis they may have very well created.

And finally, the American people have a right to know what the Federal Reserve obligated their dollars to and more importantly how many dollars did the Federal Reserve obligate to BlackRock, Inc.? During the hearing before the Senate Banking Committee, none of the witnesses - Fed Chairman, NY Fed President, SEC Chairman nor Asst. Treasury Sec. - could answer a question that was asked several times, “[w]hat are the costs of BlackRock’s services”? Needless to say, Dick Cheney’s method of contracting has become extremely popular within the federal government.

BlackCommentator.com Guest Commentator, Lloyd Wynn was a consultant in the secondary market. Lloyd is the author of Residential Real Estate Finance: From Application Through Settlement. Click here to contact Lloyd Wynn.