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Bernanke Faces New Questions Over Role of the Fed

Federal Reserve Chairman Ben Bernanke faced fresh questions from a House committee Thursday over the central bank's role facilitating Bank of America's purchase of Merrill Lynch. Experts discuss the acquisition, as well as the expanding power of the Federal Reserve, with Jeffrey Brown.

Read the Full Transcript

  • JIM LEHRER:

    We now have confirmation that pop music star Michael Jackson is dead. We'll have more on that story in a few moments.

    But now, Congress asked Federal Reserve Chairman Ben Bernanke tough questions today about his role during the financial crisis. Jeffrey Brown has that story.

  • JEFFREY BROWN:

    The key issue before a House Oversight Committee: What part did Chairman Bernanke play in Bank of America's $50 billion acquisition of Merrill Lynch in the throes of last year's economic crisis?

    In the months after the purchase, it was revealed that Merrill had lost more money than anyone at BofA initially knew. Bank of America CEO Ken Lewis considered walking away from the deal in December, but went through with it after the government provided a financial rescue package.

    Two weeks ago, Lewis told the same committee he felt pressured by the Fed to move the deal forward. And internal e-mails from other Federal Reserve employees suggested Bernanke was considering replacing the bank's management if the deal did not go through.

    But today, Bernanke insisted he did not threaten anyone to ensure the deal was completed.

  • BEN BERNANKE, Federal Reserve Chairman:

    And they were obligated to make the choice that they believed was in the best interest of their shareholders and the company. I did not tell Bank of America's management that the Federal Reserve would take action against the board or management.

  • JEFFREY BROWN:

    Bernanke was pressed repeatedly by several Republicans on the committee. Indiana's Dan Burton asked what happened when Ken Lewis considered invoking a clause to exit the deal, known as a MAC, or material adverse change provision.

    REP. DAN BURTON (R), Indiana: Is Mr. Lewis lying when he tells this committee that you put pressure on him, along with Mr. Paulson?

  • BEN BERNANKE:

    All I know is that I never said that I would replace the board and management if he invoked the MAC.

  • REP. DAN BURTON:

    Well, what did you say? I mean, you know, sometimes there's an implication without a direct order.

  • BEN BERNANKE:

    I expressed concerns about the effects of invoking the Mac both on the financial system and on the Bank of America itself. I expressed those concerns, which is appropriate, but it was always his decision whether or not to go ahead and take that decision.

  • REP. DAN BURTON:

    Did Mr. Paulson lie when he told Mr. Cuomo that he was acting under your suggestions or orders to tell them that the board would be fired if they didn't comply?

  • BEN BERNANKE:

    I believe he's modified that statement. I did not tell him — I did not tell Mr. Paulson…

  • REP. DAN BURTON:

    What did you tell him?

  • BEN BERNANKE:

    I didn't tell him anything like that.

  • JEFFREY BROWN:

    That explanation didn't convince Utah Republican Jason Chaffetz.

    REP. JASON CHAFFETZ (R), Utah: I'm just not buying that. You're in charge. You have the ability to affect their outcome, to fire them, to let them go. You're telling them that if they don't come to the same conclusion as you do that they would obviously, everybody in the room, everybody in the marketplace would know that their judgment was miscalculated.

    I think that's a threat, and I think it's reasonable for the CEO and the board of directors to take that as a threat. I don't see any other conclusion. If we were sitting across from the table, you controlled my destiny, that that's one of the consequences.

  • BEN BERNANKE:

    Well, we don't control his destiny unconditionally. We would have to make a case that he had made decisions that were damaging to the company. And if he had made that decision and the company had prospered, there would be no basis whatsoever for any action.

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