U.S. lawmakers on Thursday slammed former Treasury Secretary Henry Paulson over the government's role in Bank of America's merger with Merrill Lynch, saying authorities suppressed information about losses and bullied executives into going through with the deal.
The American people, investors, and the Congress were kept in the dark, Rep. Edolphus Towns told Paulson at a hearing.
There was no oversight to determine whether this arrangement made sense. In my view, this is unacceptable and must be prevented from happening again, said Towns, the New York Democrat who chairs the House of Representatives Oversight and Government Reform panel.
Paulson gave little ground, acknowledging that he told Bank of America chief executive Kenneth Lewis the bank's management and board could lose their jobs if the company backed away from the merger, but arguing he had done nothing inappropriate in warning Lewis that such a move would be a colossal blunder and might have repercussions.
I was attempting to send a very strong message to Ken Lewis, he said.
Government pressure on Lewis and Bank of America to go through with the deal came to light in April and has become a focal point of congressional ire over extensive bailouts of the financial system. Federal Reserve Chairman Ben Bernanke and Bank of America's Lewis testified at previous hearings.
As most people look at this, they see a clear pattern of intimidation and deception, Rep. Jim Jordan, an Ohio Republican, said on Thursday.
Bernanke argued earlier the Fed had done nothing illegal or unethical in its efforts to convince Bank of America not to end the merger after discovering huge losses at Merrill. Lewis told the panel that authorities expressed strong views but said he would not characterize their stance as improper.
On Thursday, lawmakers sought to find a chink in Paulson's armor from various angles but found few openings. One difficulty may have been that Paulson had left no email trail.
I've never used it for any business communications. I've just never used it, he told one lawmaker.
Democrats, including Rep. Dennis Kucinich, wondered why authorities didn't impose tougher restrictions on Bank of America after it received a $20 billion infusion to help it weather its rocky absorption of Merrill.
The lasting contribution of this committee's investigation will be exposing Treasury and the Fed's failure to require meaningful accountability from systemically significant banks in exchange for federal bailouts, Kucinich said.
Lawmakers of both parties expressed frustration at Paulson for seeking congressional approval of a $700 billion fund to buy toxic assets from banks only to use it to take equity stakes in banks.
Paulson and other officials say the turnabout was necessary to react to a deepening crisis. Lawmakers knew they were giving the Treasury Department flexibility in how it used the funds, Paulson said.
Towns has said he plans to call officials from the Securities and Exchange Commission to testify on the merger.
(Reporting by Mark Felsenthal; Editing by Andrea Ricci)