Bernanke: Conspirator or Scapegoat?
Posted
Jun 24 2009, 04:19 PM
by
Andrew Horowitz
Rating:
We have seen a great deal of questionable activities over the past year or so. We have already been through market manipulation and commodity fixing, tax evasion and sex scandals. Now we are learning about the possibility of one of the most respected positions in our government involved in a multi-billion dollar cover up. Would that even surprise you these days? Probably not, as nothing is a surprise anymore.
But what are the implications if it is concluded that Federal Reserve Chief Ben Bernanke and Former Treasury Secretary Paulson had pressured Bank of America's (BAC) CEO Ken Lewis to keep material information from shareholders?
We are not talking about a white lie or a simple omission. No, we are talking about billions of dollars of losses that were going to be crammed down the throats of Bank of America's shareholders in order to prevent another "too-big-to-fail" from failing. As we have come to find out, Merrill Lynch was teetering on the edge of catastrophe as the losses on their toxic assets were no longer able to be contained.(See Report: Government threatened, bullied Bank of America)
Details are surfacing and fingers are pointing toward Bernanke for using his position and influence (and a threat or three) to merge Merrill's losses into a bank that could handle the load. The problem is that it appears that he withheld information from several Federal agencies and ignored the requests from others. Hard to believe? Take a look at some of the information that is now being reported on Bloomberg:
The memo, prepared by staffers for Republican lawmakers at
a House Oversight Committee hearing tomorrow, cites what it
identifies as excerpts from internal Fed e-mails to support the
conclusion. Fed Chairman Ben S. Bernanke is scheduled to testify
at tomorrow’s hearing in Washington.
The e-mails show that the Fed “engaged in a cover-up and
deliberately hid concerns and pertinent details regarding the
merger from other Federal Regulatory agencies,” Representative
Darrell Issa, the panel’s senior Republican, said in an e-mailed
statement.
A Fed official was prepared to “steer” Merrill toward
announcing the losses later, the memo cited an e-mail as saying.
The attempt became moot after Merrill decided to let Bank of
America announce the losses when it reported first-quarter
earnings in mid-January, the memo said. The deal was completed
on Jan. 1, while Merrill’s fourth-quarter loss of $15.3 billion,
later revised to $15.8 billion, was disclosed on Jan. 16.
Memos have also been released showing that there was stern opposition to the plan by the FDIC:
The memo today also showed that Federal Deposit Insurance
Corp. Chairman Sheila Bair opposed the agency’s role in
backstopping the $118 billion agreement.
“Dear Ben, Strong discomfort with this deal at the FDIC,
for all the reasons you and I have discussed,” Bair said in a
Jan. 14 e-mail, according to the memo. “My board does not want
to do this and I don’t think I can convince them to take losses
beyond the proportion of assets coming out of the depository
institutions.”
So, is Mr. Bernanke capable of such a Machiavellian maneuver? Was Treasury Secretary Hank Paulson complicit? What was/is Mssrs. Geithner's, Obama's, Dodd's and Frank's part in all of this? Was it condoned by others or was it the act one rouge regulator? Is it okay that government has such power over private companies? Is Bernanke just the fall guy?
The list of questions and concerns is endless. What is going to be left of capitalism and free enterprise if this type of "intervention" is allowed to continue?
And one final thought: What does this say about the trust we have in the Federal Reserve and the Treasury department? If they can knowingly defraud Bank of America shareholders, what harm would it do to create a little white lie about green shoots to boost morale?
(UPDATE)
Below are a few FED emails that will be presented/discussed at tomorrow's hearing (Hat tip ZeroHedge)
fed.e-mails
Related Reading:
Bank of America straightens out its board
The Disciplined Investor Podcast
Disclosure: Horowitz & Company managed account clients do not hold positions in securities mentioned as of the publish date.
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.and his new podcast The Winning Investor: Quick and Dirty Tips for Beating the Market.
