A bipartisan chorus of House lawmakers on Thursday angrily accused former Treasury Secretary Henry M. Paulson Jr. of abusing power, misleading Congress and suppressing information in pressuring a reluctant Bank of America last year to go through with a takeover of Merrill Lynch.
“The American people, investors and the Congress were kept in the dark,” said Edolphus Towns, the New York Democrat who chairs the House Oversight and Government Reform Committee, during a hearing to investigate the merger.
“There was no oversight to determine whether this arrangement made sense,” Mr. Towns said. “In my view, this is unacceptable.”
Mr. Paulson testified that he warned Bank of America’s chief executive, Ken Lewis, that backing out of the deal would “show a colossal lack of judgment,” be “destructive” to the economy and possibly be illegal.
But 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, defiantly saying that the interests of the nation and Bank of America - which last year received $25 billion in federal bailout funds - were intertwined.
“That simply did not happen,” he said. “The interest of the nation and Bank of America were aligned with respect to the closing of the Merrill Lynch transaction.”
Mr. Paulson’s comments were met with skepticism and frustration by committee members, who repeatedly accused him of inappropriately strong-arming Mr. Lewis to complete a deal over fears that without it, the shaky economy would be further damaged.
“I think there isn’t anyone in this room who says you didn’t intimidate Mr. Lewis,” said Rep. Jim Jordan, Ohio Republican, who called Mr. Paulson’s actions in the merger “a pattern of deception.”
Mr. Towns said Mr. Paulson misled Congress when he pressed lawmakers last fall to pass the Wall Street bailout package, which he said was intended to be used to purchase toxic assets - not for bank mergers.
Mr. Paulson, former head of investment bank Goldman Sachs, 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,” he said.
Rep. Dan Burton, Indiana Republican, 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.
In one testy exchange, Rep. Marcy Kaptur verbally pounced on Mr. Paulson when he said that had the government not pumped taxpayer money onto Wall Street last year, the economy would have suffered more.
“If that’s your best argument, it’s not good enough,” the Ohio Democrat shot back.
Lawmakers also accused Mr. Paulson of telling Mr. Lewis to withhold information from bank investors regarding Merrill Lynch’s losses, saying it was an unethical and possibly illegal act. Mr. Paulson denied the claim.
Although Bank of America had reached an agreement in September to buy Merrill Lynch, Mr. Lewis told the committee last month that by December, he had considered invoking a clause that would have canceled the deal due to concerns regarding Merrill Lynch’s increasing financial troubles.
Mr. Lewis said 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.
Mr. Lewis also complained that the Bush administration and the Federal Reserve threatened to remove top executives of the bank unless the financial giant went ahead with the merger.
Mr. Paulson admitted that he told Mr. Lewis that it was possible the Fed would remove management and board members if the deal fell through. In written statements submitted to the committee, Mr. Paulson said that any bank board that “triggered such destabilization” to the economy could be subject to removal by the Fed under federal statute - “and should be.”
Mr. Paulson said that Federal Reserve Chairman Ben S. Bernanke never asked him to tell Mr. Lewis of any specific action the Fed might take. Mr. Bernanke has denied any wrongdoing and has told the committee that Mr. Lewis had the final say on the Merrill Lynch takeover.
Following the merger in January, Bank of America received another $20 billion in federal bailout money.