Paulson lashed on BofA-Merrill deal

House lawmakers on Thursday heavily criticized former Treasury Secretary Henry Paulson and other government officials for pressuring Bank of America to complete a deal with Merrill Lynch at the height of the financial crisis.

Paulson, making one of his first public appearances since leaving government, defended his tenure and said that the government’s actions “averted calamity.”

But Democrats and Republicans alike continued to lash out at the government’s role in a deal that resulted in roughly $20 billion in bailout money supporting Bank of America.

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Congressional investigators on the House Committee on Oversight and Government Reform have spent months looking into whether Paulson, Federal Reserve Chairman Ben Bernanke and other officials applied inappropriate pressure on the bank by threatening to oust CEO Kenneth Lewis and other executives if they did not complete the deal.

The bank was considering pulling out of the deal because Merrill was expected to report billions of dollars in losses. But the bank decided to move forward, completing the acquisition in January.

Paulson testified that it would have been “unthinkable” and shown a “colossal lack of judgment” if Bank of America scuttled the deal. He defended his comments to Lewis in December that the bank management could be removed by the Federal Reserve.

Bernanke has denied making any such threats, and Paulson said that he was speaking on his own behalf.

Democrats and Republicans are concerned that federal officials overstepped their bounds, but it’s unclear if there is any evidence of illegality.

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Rep. Edolphus Towns (D-N.Y.), chairman of the committee, called the December negotiations a “shakedown.” Towns said he will call a further hearing into the issue after the August recess with Christopher Cox, former chairman of the Securities and Exchange Commission, and Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation.

“The American people, investors and the Congress were kept in the dark,” he said. “This is unacceptable and must be prevented from happening again.”

Rep. Dennis Kucinich (D-Ohio) said that he was concerned that federal officials prevented Lewis from disclosing information to bank shareholders about potential losses at Merrill Lynch. Paulson denied making any such comments.

“The lasting contribution of this committee’s investigation will be exposing Treasury’s and the Fed’s failure to require meaningful accountability from systemically significant banks in exchange for federal bailout,” Kucinich said.