- The Washington Times - Thursday, July 16, 2009

A bipartisan chorus of House lawmakers on Thursday angrily accused former Treasury Secretary Henry M. Paulson Jr. of abusing his authority and misleading Congress in pressuring a reluctant Bank of America to go through with a takeover of Merrill Lynch last year.

Mr. Paulson, while testifying on the merger before the House Oversight and Government Reform Committee, said he warned Bank of American Chief Executive Ken Lewis that backing out of the deal would “show a colossal lack of judgment,” have a “destructive” impact to the economy and possibly be illegal.

The former secretary, who stepped down in January with the arrival of the Obama administration, denied accusations he placed the concerns of the nation’s overall financial system above those of a private institution and its investors, saying that the interests of the nation and Bank of America were intertwined.

But several members of the committee accused Mr. Paulson and Federal Reserve Chairman Ben S. Bernanke of inappropriately strong arming Mr. Lewis to complete deal because they feared it would cause further damage to the shaky economy and because the bank had received $25 billion in federal bailout funds.

Paulson defends push for Merrill Lynch merger

“I think there isn’t anyone in this room who says you didn’t intimidate Mr. Lewis,” said Republican Jim Jordan of Ohio, who called Mr. Paulson’s actions in the deal “a pattern of deception.”

Committee Chairman Edolphus Towns, New York Democrat, said Mr. Paulson mislead Congress when he pressed lawmakers last autumn to pass the $700 billion Wall Street bailout package, which was intended to be used to purchase toxic assets — not for bank mergers.

“While all of this was going on, the American people, investors and the Congress were kept in the dark,” Mr. Towns said “There was no oversight to determine whether this arrangement made sense. In my view, this is unacceptable.”

Mr. Paulson countered that when Congress passed the Troubled Asset Recovery Program, or TARP, the Treasury Department was given considerable leeway regarding how it could spent the $700 billion.

“From the beginning we wanted flexibility … and Congress gave us flexibility,” Mr. Paulson said.

Indiana Republican Rep. Dan Burton said he found it difficult to believe Mr. Paulson.

“You’re a very smart man — I don’t think anybody’s buying what you’re saying right now,” he said.

Lawmakers also accused Mr. Paulson of telling Mr. Lewis to keep quiet about his concerns over Merrill Lynch’s losses, saying it was an unethical and possibly illegal act. Mr. Paulson has denied the claim.

Although Bank of America had reached an agreement in September to buy Merrill Lynch, Mr. Lewis has said that by December he had considered invoking a clause that would have canceled the deal due to concerns regarding Merrill Lynch’s increasing financial losses.

Mr. Lewis told the committee last month that when he approached federal regulators about his concerns, they advised him to stick with the deal because scrapping it would further hurt the wounded U.S. economy.

The bank chief also said that Bush administration and the Federal Reserve threatened to remove top executives of the bank unless the financial giant went ahead with the merger.

Mr. Lewis said that while the government pressure was not the deciding factor in the bank’s eventual decision to acquire the global financial services firm, “what gave me concern was that they would make that threat to a bank in good standing.”

Mr. Paulson said that he told Mr. Lewis that it was possible the Fed would remove management and board members if the deal fell through, adding that any bank board that “triggered such destabilization” could be subject to removal by the Fed under federal statute, “and should be.”

Mr. Paulson said Mr. Bernanke never asked him to tell Mr. Lewis of any specific action the Fed might take.

Mr. Bernanke also has denied any wrongdoing, and has told committee that Mr. Lewis had the final say on the Merrill Lynch takeover.

Following the merger in January, Bank of America received an additional $20 billion in federal bailout money.

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