Hank Paulson to defend his threat to fire Bank of America's Ken Lewis
Hank Paulson, the ex-Dartmouth football player who bulldozed his way into making the world safe for Goldman Sachs Group (GS), is at it again. You'll recall last fall when he persuaded Congress that the world would end unless it passed $750 billion for the Troubled Asset Relief Program (TARP) to buy up Wall Street's toxic waste.
Then he made sure to bail out American International Group (AIG) to the tune of about $180 billion so Goldman, which he ran before his trip to Washington, could get $12.9 billion more in a 100-cents-on-the-dollar settlement for its part in a credit default swap with AIG.
And finally, Paulson forced Bank of America (BAC) to acquire the down-on-its-luck Goldman competitor Merrill Lynch. As it turns out, there seems to be some controversy over whether Paulson threatened to fire B of A CEO Ken Lewis if he pulled out of the Merrill deal.
But with Goldman reporting huge profits and B of A about to report results saddled with nasty charges related to that Merrill deal, Paulson is going to come out swinging when he testifies tomorrow in front of Congress. Specifically, Paulson will testify that on December 21, 2008 he told Lewis that backing out of the deal "would show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system."
In June, Lewis told Congress that B of A had considered abandoning the Merrill deal in mid-December as losses at Merrill headed over $15 billion. This January, B of A completed the deal without telling investors about the losses.
But this is all good for Paulson and Goldman. So what if Paulson may have threatened to fire Lewis if he did not submit to Paulson's pounding?
It's the Goldman rule: He who runs Goldman makes the rules.
Peter Cohan is president ofPeter S. Cohan & Associates. He alsoteaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns AIG shares and has no financial interest in the other securities mentioned.