Bernanke faces congressional skeptics over BofA-Merrill deal
Ben Bernanke, the chairman of the Federal Reserve, will testify before the House Committee on Oversight and Government Reform Thursday to face questions over his role was in the Bank of America (NYSE:BAC) purchase of Merrill Lynch.
Bernanke has encouraged Congress and the press to view former Treasury Secretary Henry Paulson as the "bad cop" in the negotiations that allegedly "forced" Bank of America to close the transaction.But documents uncovered by The Wall Street Journal indicate that Bernanke was not a remote figure in the negotiations at all. According to the paper, "Federal Reserve staff discussed getting a "pound of flesh" from Bank of America Corp. management in return for government aid to help close its deal for Merrill Lynch & Co."
Perhaps Bernanke was kept in the dark about the plans to beat on the big money center bank. Perhaps not. It is likely that many members of the committee believe that he was deeply involved in the Merrill transaction.
In a statement released to Reuters, Representative Darrell Issa, the top Republican on the House Oversight and Government Reform Committee said that the Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies."
But If Bernanke pushed the Merrill deal hard, was he right to? The Fed chief and Paulson almost certainly believed that the credit markets were at the brink of collapse late in the final quarter of 2008. Paulson has indicated that a collapse of the Merrill Lynch buy-out could well have been the last straw. Merrill was in worse financial shape than the public expected as its fourth quarter results showed.
Bernanke will probably continue to claim that his part of the Bank of America negotiations was done at arm's length, and that he left it to other officials, especially Paulson, to do what was best for the country's financial system.
No one will ever know if the completion of the Merrill purchase stemmed the panic that might have ruined the financial system. That makes the argument that Bernanke and Paulson did what was right awkward. It probably doesn't matter. Bernanke is going to have a bad day. He will be accused of undermining the public's trust in the independence of the Fed and harassing the CEO of a public company. But, Congress cannot touch him. Because of his handling of the financial crisis, some have called Bernake a national hero.
Douglas A. McIntyre is an editor at 24/7 Wall St.