Welch’s statement came during a House Committee on Oversight and Government Reform hearing. The committee convened to discuss Bank of America’s December acquisition of Merrill Lynch and the January government bailout that its acquisition of Merrill Lynch triggered.
The committee is focusing on why the deal, which began as an agreement between two private companies, ballooned into a $20 billion taxpayer-financed bailout. In January, Charlotte, N.C.-based Bank of America announced that Merrill had suffered $15 billion in losses in the fourth quarter of 2008 and that it had negotiated a deal with the Federal Reserve to receive $20 billion in funds as part of the Toxic Assets Relief Program (TARP).
According to the testimony Bank of America CEO Kenneth Lewis’ gave to Congress last month, he realized the magnitude of Merrill’s losses on December 14th, 2008, just nine days after shareholders approved the acquisition. Lewis said that, after the magnitude of Merrill’s financial liabilities became clear, he became concerned and unsure about completing the deal.
He and the bank’s board of directors considered invoking the Material Adverse Events clause (known as the MAC), which would have allowed the bank to rescind its bid.
It was at this point that the Fed became involved, and the events following December 14th are the focal point of the committee’s investigation. Lewis testified last month that Fed Chairman Ben Bernanke, through Paulson, threatened to remove Lewis, and the board he had appointed, if they chose to invoke the MAC. The Republican members of the committee are using Lewis’s testimony to build a case against Bernanke, and using his alleged threats as a symbol of the government’s unprecedented invasion into private enterprise.
Yesterday, the Republicans grilled Bernanke on his involvement in the deal.
“This is not a socialist enterprise…you told them, you’re going to do this, or else,” Rep. Dan Burton, R-Ind., said.
Committee Democrats, on the other hand, blame Lewis for the bailout. Emails the committee obtained through subpoena from the Fed show that Bernanke, as well as other Fed officials, were initially skeptical of Lewis’ motives for considering invoking the MAC. Despite Bernanke’s statement yesterday that his skepticism faded after he realized that Lewis was genuinely concerned, several Democrats accused Lewis of having manipulated the Federal government.
“[Lewis] is a wily CEO of a major corporation,” not a victim of governmental pressure, Rep. Gerald Connolly, D-Va., said.
The committee will continue its investigation next month when former Secretary of the Treasury Hank Paulson is set testify before the committee. Whether that testimony will shed light on the events surrounding the Fed’s massive bailout of Bank of America remains to be seen.
But the real question is whether the government will, as Welch has recommended, restrict corporate growth and pick corporate winners and losers — to the detriment of efficient companies, and to the advantage of inefficient ones — or will allow companies to compete on a level playing field in the free market.
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June 29th, 2009 at 4:38 pm
Why are far-reaching bills being rushed through before Congress, much less the American people, can actually read them to be able to have a legitimate opinion for voting? This is Absolutely a Socialist enterprise! Consituents have no say, no representation. Tea Partiers, unite!
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