I’ve grown pretty stoic when it comes to hearing news about morally dubious politicians and bureaucrats. A story I heard this morning on NPR, however, made my eyes grow as wide as dinner plates. It had to do with the takeover of Merrill Lynch by Bank of America late last year and something Fed chair Ben Bernanke said regarding the deal during a hearing on the Hill.
Federal Reserve Chairman Ben Bernanke on Thursday pushed back hard against accusations the Fed threatened Bank of America executives if they halted a merger with Merrill Lynch or pressured them to withhold bad news about the troubled investment bank.
“Neither I nor any member of the Federal Reserve ever directed, instructed, or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch,” Bernanke told the House of Representatives Oversight and Government Reform Committee.
What does this mean? Well, BoA execs were wary about taking on Merrill Lynch. Merrill’s huge problems would become BoA’s huge problems (read: shareholders), with the potential of bringing down the whole ship (not that there were no holes in the hull to begin with because of bad assets).
BoA CEO Ken Lewis alleges the feds threatened their jobs if they didn’t go along. Specifically, they admonished them to keep their mouths shut about Merrill’s problems. Bernanke says all that is hogwash. You would think the truth would be somewhere in the middle.
However, I read an article in last month’s issue of The Atlantic that was eye-opening. The author, a former chief economist at the International Monetary Fund, basically says that because of misplaced faith and the “revolving door” between Wall Street and Washington, core crisis issues aren’t being addressed and taxpayers are getting fleeced.
But he also touches on a disturbing tactic employed by the feds:
The response so far is perhaps best described as “policy by deal”: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine.
…
Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.
So we had no transparency and no oversight. Add a dash of panic, and what do you think might happen?
It is no secret that the international financial system is interconnected, and time was short if they wanted to shore up confidence in that system. Maybe Ben was just too eager…
Food for thought, anyway.
