HIGHLIGHTS: Senate hearing on Bear Stearns rescue

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke, New York Federal Reserve Bank President Timothy Geithner, Securities and Exchange Commission Chairman Christopher Cox, Treasury Undersecretary Robert Steel, JPMorgan Chase chief executive Jamie Dimon, and Bear Stearns chief executive Alan Schwartz on Thursday testified to the Senate Banking Committee on financial market turmoil and JPMorgan's planned purchase of Bear Stearns.

Following are highlights from both their prepared remarks and questions and answer session:

SENATE BANKING COMMITTEE CHAIRMAN CHRISTOPHER DODD ON FED'S

ASSISTANCE:

It's what I call the socialization of risk and the privatization of reward.

In the absence of some real changes, we could be looking at other situations down the pike here, maybe with a far greater risk than the one we're talking about here. To the extent that you want to socialize risk, you're going to raise some very serious questions as well.

BEAR CEO SCHWARTZ ON LEGISLATIVE SUGGESTIONS (from Q&A):

I think longer term we have to look at the whole way that mortgages get underwritten, because there has to be some liability to the people who underwrite the mortgages to make sure that they are applying standards appropriately.

JPMORGAN CEO DIMON ON SPEED OF REGULATORS (from Q&A):

I do think the regulatory authorities need to move more quickly in this new world.

The Fed might have acted very differently that weekend if it had been given different statutory authorities.

ALAN SCHWARTZ ON TRADING PANIC (from Q&A):

I would just say as an observer of the markets, it looked like more than just fear. It looked like people wanted to induce a panic. A lot of the trading would point to that.

I always had a concern that the lack of a known liquidity facility for your collateral is something that can cause a problem with the lenders against that collateral. All of us as investment banks lend against high-quality collateral and we turn around and use that collateral.

I don't think the value of the collateral collapsed. The willingness of people to lend against it just dissipated because of fear.

BERNANKE ON LOSSES (from Q&A):

A lot of losses have been taken and I think a lot of the adjustment in house prices, for example, has taken place but we have to remain agnostic and see how the economy evolves -- we remain ready to respond to whatever situation evolves and that's, I think, part of the value of having the Federal Reserve and the Treasury have this flexibility to respond to different conditions.

SEC'S COX ON RUMORS OF SHORT-SELLING AROUND BEAR DEAL (from

Q&A):

The rumors surrounding the activity you described are too big to miss.

Mr. Chairman, your hopes will be, I think, met and exceeded with respect to the agency's response to these

concerns.

NY FED'S GEITHNER ON WHETHER SHORT TIME-FRAME AFFECTED BEAR STEARNS DEAL (from Q&A):

It's hard to know what would have been possible, but I think if we had had more time we would have done exactly the same thing -- in the sense that we would have a mix of our own people looking at the collateral and its value, we would have tried to get the best experts in the world to give us a second opinion on that. We would have had more time, certainly, to go through the details. But I think the fundamental parameters we established for what we would accept and what we would not accept, and the design of the structure to mitigate the risk of any loss are things that we would have... come to even if we had a lot more time.

BERNANKE ON FAILURE OF FANNIE MAE, FREDDIE MAC (from Q&A):

There would be certainly two options (if Fannie Mae or

Freddie Mac failed), one would be significant systemic risk or government guarantees. So either way would be not a good outcome, obviously. For that reason, I certainly support both good oversight and the GSEs should continue to raise capital. The recent evidence is that financial firms can raise capital.

SEC'S COX ON SHORT SELLING INVESTIGATIONS (from Q&A)

"The SEC very aggressively pursues insider trading, market manipulation and the kinds of illegal naked short selling that has been very publicly alleged in this case."

NY FED'S GEITHNER ON BLACKROCK'S FEE (from Q&A):

We have not yet completed our negotiations on the fee. It will be a commercially reasonable fee. We will be very careful in setting it so that we're getting something or paying something that matches the complexity of the responsibilities and the importance to us that it get managed in a way to minimize the risk.

NY FED'S GEITHNER ON REGULATOR OVERHAUL (from Q&A)

First we have at the SEC's invitation, a team of people in these institutions, the major investment banks, looking carefully at their funding, and how they are managing their funding, and how they are going to position themselves to be stronger to withstand these kind of pressures.

Second, the Federal Reserve has put in place a very powerful set of liquidity facilities to help mitigate the risk...

Third, we have been working very actively, to try-- alongside the treasury and others--, to try to make sure that institutions take steps to strengthen their capital positions (so they) are better positioned to manage through this crisis.

I think we need to look ahead though, because those will not be enough... We need to look comprehensively at a broad range of regulatory policy and structure.

SEC'S COX ON SEC INVESTIGATIONS ON MARKET MANIPULATION (from Q&A)

I cannot confirm or deny the existence of any particular matter under investigation.

But suffice it to say, the Securities and Exchange Commission takes very seriously its responsibility to investigate allegations of this kind and there have been ample allegations made in this context.