The unfortunate series of events that lead to the Bank of America receiving bailout funds and guarantees amount to nearly $175 billion in November of last year and January of this year are looking increasing troubling:
According to e-mails released Wednesday that pull back the curtain on heated negotiations, Federal Reserve Chairman Ben Bernanke had suggested to another Fed official that “management is gone,” if BofA managers tried to flee the deal and later on needed further government assistance.
The revelations come thanks to congressional subpoenas demanding that the Fed disclose e-mails related to Bank of America’s purchase of Merrill. CNNMoney.com acquired copies of some of the e-mails circulated among House Republicans late Wednesday.
Lewis is the sole witness of a House Committee on Oversight and Government Reform hearing Thursday about the BofA-Merrill deal titled “Bank of America and Merrill Lynch: How Did a Private Deal Turn into a Federal Bailout?”
He is expected to be asked specifically about whether the Federal Reserve and other government officials pressured Bank of America (BAC, Fortune 500) into completing the merger even after BofA realized how badly Merrill Lynch’s fourth-quarter losses would be.
In my view if officials at the Fed or Treasury exceeded their authority in this matter not only should they be removed from office (if they’re still in office) they should be prosecuted to the full extent of the law.
Regardless of how pure their motives might have been if we are to remain a government of laws rather than men then men must abide by the law. I don’t care to what administration they belong, to whose political benefit acting or failing to act might accrue, nor how severe the consequences if they had failed to do otherwise. Motive might affect punishment but not guilt.
But of course it will never happen. Talk about moral hazard!
I’m confused by this story and the timeline. The deal was approved December 5th and closed January 1. BofA first received TARP money January 16th, which was presumably tied to some government security and potential control.
The threats appear to have been in the mid- to late-December. What is the government’s authority to threaten a job at that time? What was Bernanke’s hand here?
That’s why I find it troubling. Regulators have broad authority but not this broad. If this is the way that panic-stricken regulators behave we need to open a new can of regulators.
Emails are also surfacing in the Chrysler case. Specifically, the notion proffered by some that the secureds took the raw deal they were given because they doubted the liquidation value of collateral is countered by emails indicating that real estimates were MUCH higher. My position all along. I’ve been doing this too long.
Anyone who doesn’t believe that when the government intercedes like they have in the banks or the autos we don’t get the worst of decisionmaking needs to be handed Toto, and shipped off to join Dorothy in Kansas.
And now we have executive compensation limits…………but only guidelines, and in special cases.
Right.
But at what point would a call from Bernanke to you, threatening YOUR job, be credible? I can understand general threats of government power, difficulty obtaining permits/licenses, cancelled government contracts, etc.
My guess: BofA announced the deal in September, after having conducted its due diligence. The deal certainly had to have been made with knowledge that Merill had been hemmoraging money, so it was a vulture purchase. But the economy went south, the cheap pick-up was a toxic asset. Still, there were no surprises about Merrill’s assets and liabilities, that would not have already turned up in due diligence, they just looked different in the morning, sober. Faced with retreating, conceding a mistake, and lawsuits, Lewis went forward and got the shareholders to agree to a marriage on December 5th. He got cold feat at this point (or wanted more money from Uncle Sam). Uncle Same hoisted a shotgun by pointing out the breaches of management’s fiduciary duties to shareholders in concealing what they had determined was an awful deal. Extortion by evidence of civil and possibly criminal-wrongdoing. At the very least management would be out of a job, but it might even be worse.
Just a theory . . .
PD –
Uh, er…….many a deal dies in the third trimester for reasons you cite. In fact, to continue the anology, even the 9th month.
Market or economic conditions? Diligence? Realization of what diligence is really saying? Deal terms? You name it. An old saying among the deal making class: “until you receive the fed reference numbers for the wire transfers……….you have no deal.”
But the notion that the government pointed a gun at the CEO because of his withholding bad info from the shareholders?? I don’t think so. The CEO could have scuttled the deal at any time for fiduciary reasons. Better: Government held a shotgun because they knew they could intimidate the CEO into moving forward, the shareholders be damned. Two bad guys: the Feds, and Lewis. Period.
Sorry shareholders. Of course, if you voted for Obama, well, here’s the b-forking you voted for.
Yes we can!