“The American people, investors and the Congress were
kept in the dark,” Rep. Edolphus Towns said to Paulson.
“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 surrendered little ground at the hearing, saying he
told Bank of America CEO Kenneth Lewis the bank’s management and board could
lose their jobs if the company backed out of the merger, but arguing he did
nothing inappropriate in warning Lewis that such a move would be a blunder and
might have repercussions.
“I was attempting to send a very strong message to Ken
Lewis,” he said, adding that he believed his remarks were
“appropriate,” according to news agency reports.
Paulson said he didn’t tell the bank’s chief to hide
potential losses from shareholders. The former Treasury chief also said he
pledged government aid to the bank but declined to put that promise in writing
because the details would have been vague and would have to be disclosed
publicly by the Treasury Department.
He added that negotiations were kept private to protect
“We didn’t want to overly scare people and make it
worse,” Paulson told the House panel.
Listen to Paulson’s opening statement and his response to
some questions from the committee:
His testimony comes as Congress debates whether to expand
the Federal Reserve’s power to monitor large, influential institutions like
Bank of America.
Towns said he believes Lewis squeezed money out of the
government by threatening to back out on the deal. The government ultimately
gave $20 billion to the bank to ease losses tied to the acquisition.
“All of this happened against a backdrop of unchecked
government power, with no transparency or accountability,” Towns said.
Federal Reserve Chairman Ben Bernanke has denied that he
threatened to oust Lewis and said he never told anyone else to do so. But
another Fed official suggested otherwise in an e-mail obtained by House investigators,
the Associated Press reported.
Jeffrey Lacker, president of the Richmond Federal Reserve
Bank, said in a December e-mail that Bernanke planned to make “even more
clear” that if Bank of America backed out on the deal, “management is
Paulson said Bernanke never asked him to relay the message.
But, he added, he believed he was expressing the Fed’s opinion that dropping
the deal “would raise serious questions about the competence and judgment
of Bank of America’s management and board.”
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 frustration over extensive bailouts of the financial system.
Bernanke and 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
Lawmakers sought to pin down Paulson on various decisions
and actions they found questionable, but they ran into difficulty, due in part
to Paulson leaving no e-mail trail.
“I’ve never used it for any business communications.
I’ve just never used it,” he told one lawmaker.
Towns has said he plans to call officials from the
Securities and Exchange Commission to testify on the merger.