An explanation of what the Federal Reserve is up to, and how we got here.
Tag: Ben Bernanke
CEO Says Government Pressured Bank Of America To Buy Merrill Lynch
House lawmakers today accused federal regulators of a gross misuse of power in orchestrating a “shotgun wedding” between Bank of America Corp. and Merrill Lynch & Co. that cost U.S. taxpayers $20 billion.
They also took aim at Bank of America Chief Executive Officer Kenneth Lewis, questioning whether he played dumb last fall as Merrill’s financial losses mounted and threatened not to go through with the merger to squeeze money from the government.
“Why did a private business deal announced in September and approved by shareholders in December — with no mention of government assistance — end up costing taxpayers $20 billion in January?” asked Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee.
The panel has been investigating the deal, including whether federal officials pressured Lewis and urged him to keep quiet about Merrill Lynch’s financial problems. Not divulging that information would have violated Lewis’ fiduciary duty to the bank’s shareholders.
In testimony before the committee, Lewis said publicly for the first time that his job was threatened after he expressed second thoughts about the merger. Lewis said then-Treasury Secretary Hank Paulson and federal regulators made clear that if the bank reneged on its promise they would force his ouster and that of board members at the bank.
“What gave me concern is that they gave that threat to a bank in good standing,” Lewis told the House Oversight and Government Reform Committee. “So it showed the seriousness with which they thought that we should not” back out.
Paulson and Federal Reserve Chairman Ben Bernanke also pledged government aid to Bank of America to help absorb the losses, Lewis said.
Bank of America ultimately received $45 billion from the government’s bank bailout program, $20 billion of which was tied to its acquisition of Merrill Lynch.
Lewis said he was never asked by Paulson or Bernanke to withhold information from his shareholders. However, Lewis said Paulson told him in a telephone call that the government was reluctant to put the terms of the deal in writing because it would have prompted public disclosure.
The Federal Reserve declined to comment on Lewis’ testimony.
A spokeswoman for Paulson has said the former Treasury secretary felt a letter would have been too vague to help Bank of America and only served to rattle markets by creating more questions than answers. She said questions about disclosures by the bank were left up to the Bank of America.
Towns said he plans to invite Bernanke and Paulson to testify at a later hearing.
Lawmakers on the committee said they were troubled by Lewis’ testimony as well as internal Fed documents related to the deal.
In one e-mail, Bernanke said he thought Lewis’ threat to pull out of the deal was a “bargaining chip” and “we do not see it as a very likely scenario at all.”
Other e-mails by federal analysts suggested they thought it suspect that Lewis claimed to be surprised by Merrill’s losses given the clear signs of a deteriorating economy.
An employee at the Richmond Federal Reserve said Bernanke had made it clear that if Bank of America backed out and needed financial assistance, “management is gone.”
Towns and Rep. Darrell Issa, R-Calif., the committee’s top Republican, said the merger was an obvious “shotgun wedding” that came at the expense of the taxpayer.
However, Rep. Dennis Kucinich, D-Ohio, said he thought Lewis was the one who was pressuring the government.
“There’s been a misconception here that the government put a gun to the head of Bank of America, when it’s quite possible that it was the Bank of America that put a gun to the head of the Fed by threatening” to back out, Kucinich said.
Lewis said he did nothing wrong. In the end, the decision to go ahead with the acquisition — with the promise of government support — was in everyone’s best interest, he testified. “This course made sense for Bank of America and its shareholders, and made sense for the stability of the markets,” he said. “We viewed those two interests as consistent.”
Just a few weeks after the deal was completed, Bank of America’s fourth-quarter earnings report showed the hit taken by its balance sheet because of the Merrill Lynch transaction, which made Lewis the target of shareholder anger.
Chris Dodd and His Cosy Irish Cottage
Drudge should make a screaming headline out of this today since Dodd is up on deck grilling Ben Bernanke and Tim Geithner today at the Senate Banking Committee.
Sen. Dodd’s measly little Irish “cottage” on 10 acres he values at between $100,000 to $250,000.
An intriguing item here from the dogged Kevin Rennie of the Hartford Courant that highlights a classic example of why ordinary citizens become cynical about politicians and the way business in Washington is conducted.
Silver-haired Senator Christopher Dodd, chairman of the Senate Banking Committee, has already been getting a lot of heat for his two 2003 VIP mortgage loans from Countrywide, one of the major actors in triggering the current financial crisis.
Seeking Senate re-election in 2010, the 2008 presidential candidate (he dropped out on the first day of voting after finishing seventh in Iowa, where he had moved with his family as a way of courting voters) is now in a bit of a sticky spot with another accommodation- his “cottage” on the lovely Irish island of Inishnee.
Some digging from Rennie (a lawyer and former Connecticut state legislator) reveals that as well as there being a cloud over Dodd’s properties in Connecticut and Washington DC, considerable murkiness surrounds the financial arrangements for the purchase of his “cottage”.
As Rennie outlines, Dodd became part owner of the 10-acre Galway property in 1994 along with Missouri businessman William Kessinger, whom Dodd knew through investor Edward R. Downe Jnr, who had pleaded guilty the previous year to insider trading charges. The mortgage was listed as “between $100,001 and $250,000”. Downe was a witness to Kessinger’s purchase.
In 2001, Dodd circumvented the US Justice Department to help get his pal Downe a full pardon on President Bill Clinton’s last day in office. The following year, Dodd bought off Kessinger’s two-thirds share of the “cottage” for, Dodd said, $127,000.
Ever since then, Dodd has continued to list the value of the property as “between $100,001 and $250,000”.
Check out the picture of Dodd’s “cottage” (provided to me by Rennie), where he spends summers and which is looked after during the rest of the year by a caretaker. It’s not exactly the humble tumbledown abode with a leaky thatched roof, a fireplace with peat thrown on it and donkey tethered outside that the Senator might like you to envisage.
The nearby village of Roundstone is a celebrity hangout. When he’s there, the Sunday Times reported in 2007, he’s likely to “rub shoulders with [RTE’s] Pat Kenny, Bill Whelan of Riverdance, Lochlann Quinn, the former AIB chairman, and the singer Brian Kennedy”.
Given the Irish property boom, a conservative estimate would be that the house would be worth approaching $1 million, and very possibly much more than that.
So why hasn’t Dodd declared a more realistic true value of the property? No doubt he didn’t want to highlight the fact that he had a third splendid pile, to go along with his residences in DC and Connecticut, as he sought the presidency (remember how all those homes harmed John McCain?). Maybe he knew it would mean further scrutiny of his connection with the pardoned crook Downe.
Now that President Barack Obama – whom Dodd enthusiastically endorsed for president over Hillary Clinton – has declared a new era of ethical government in Washington, his former Senate colleague will order a fresh, long overdue reappraisal of its value. Or perhaps the Senate Ethics Committee will look into the matter.
Call me cynical, but I wouldn’t advise you to hold your breath.
Is this the end of America?
Stay strong and remember this quote from a great man who symbolized all that is great with America:
“Be courageous! … I have seen many depressions in business. Always America has come out stronger and more prosperous. Be as brave as your fathers before you. Have faith! Go forward.” ~ Thomas Edison
Helicopter Ben Bernanke’s Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers.
As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America?
Obama and Geithner Receive Failing Grades From Economists
Obviously these economists are racists!
Obama, Geithner Get Low Grades From Economists
U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.
On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.
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