Thursday, April 23, 2009

Misdirected outrage

It has now been revealed that:

Bank of America Chief Executive Ken Lewis said that the Treasury and the Federal Reserve threatened to remove him and the firm's board of directors if the company did not go through with a planned acquisition of Merrill Lynch late last year. According to the minutes of a December 22 meeting, which were released Thursday by New York Attorney General Andrew Cuomo, the government made the threat when the bank was considering invoking a "material adverse change" clause to quash the deal after it became clear Merrill's finances were collapsing. According to the minutes, Lewis, told the board that, "the Treasury and Fed stated strongly that were the corporation to invoke the material adverse change clause in the merger agreement with Merrill Lynch and fail to close the transaction, the Treasury and Fed would remove the board and management of the corporation."

I've heard that a number of major shareholders will try to oust Lewis, claiming that he was looking out for his own job instead of the interest of the shareholders. Why am I not hearing more people blame the Paulson and Bernanke?

I want to see the shareholders of Bank of America sue the Fed and Treasury, which committed at least two crimes: covering up the material information and blackmailing Bank of America's management.

But I am going to excuse Mr. Lewis even though he "should have" released the information to shareholders. He was probably worried about more than just losing his job. When the federal government tells you do something or else, you really have to worry. We have seen many businessmen thrown in jail recently on trumped on charges. Remember Martha Stewart, who was found guilty of lying to investigators about insider trading for which she was found not guilty. I am sure that when Mr. Lewis was told that he has to keep the information quiet and continue the merger with Merrill Lynch, the Feds also told him that breaking off the merger would crash the stock market and financial system and they would hold him responsible. Mr. Lewis was probably worried about more than just losing his job.