Bank Of America - A Case Study In How To Spread Sy

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The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It's a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse. In the name of containing "systemic risk," our regulators spread it. In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders. And in the name of restoring financial confidence, they have so mistreated Bank of America that bank executives everywhere have concluded that neither Treasury nor the Federal Reserve can be trusted. Mr. Lewis has told investigators for New York Attorney General Andrew Cuomo that in December Mr. Paulson threatened him not to cancel a deal to buy Merrill Lynch. BofA had discovered billions of dollars in undisclosed Merrill losses, and Mr. Lewis was considering invoking his rights under a material adverse condition clause to kill the merger. But Washington decided that America's financial system couldn't withstand a Merrill failure, and that BofA had to risk its own solvency to save it. So then-Treasury Secretary Paulson, who says he was acting at the direction of Federal Reserve Chairman Bernanke, told Mr. Lewis that the feds would fire him and his board if they didn't complete the deal. Mr. Paulson told Mr. Lewis that the government would provide cash from the Troubled Asset Relief Program (TARP) to help BofA swallow Merrill. But since the government didn't want to reveal this new federal investment until after the merger closed, Messrs. Paulson and Bernanke rejected Mr. Lewis's request to get their commitment in writing. "We do not want a disclosable event," Mr. Lewis says Mr. Paulson told him. "We do not want a public disclosure." Imagine what would happen to a CEO who said that. After

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