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Former Treasury Secretary Hank Paulson is attempting to defend the indefensible: himself. He even claims to have "saved this nation from great peril." Please consider his preposterous claims as outlined in Paulson defends his response to economic crisis.
Defending the government's handling of the economic crisis last year, former Treasury Secretary Henry Paulson said Wednesday that the Bush administration's responses were not perfect but "saved this nation from great peril."Paulson Belongs In Prison
"Many more Americans would be without their homes, their jobs, their businesses, their savings and their way of life," he said in written testimony prepared for a hearing Thursday.
"Our responses were not perfect ... But, having had the benefit of some time to reflect, and to consider views expressed by others, I am confident that our responses were substantially correct and they saved this nation from great peril," Paulson wrote.
Paulson also defended himself against allegations that he and Federal Reserve Chairman Ben Bernanke pressured Bank of America Corp. into acquiring Merrill Lynch, despite mounting financial losses at Merrill that were ultimately absorbed by Bank of America stockholders.
Bernanke has denied threatening to oust Bank of America CEO Kenneth Lewis if he abandoned the takeover.
Paulson said he told Lewis that reneging on the promise to purchase Merrill would show "a colossal lack of judgment." He then pointed out to Lewis that the Fed could remove management at the bank if it saw fit, he said.
"By referring to the Federal Reserve's supervisory powers, I intended to deliver a strong message reinforcing the view that had been consistently expressed by the Federal Reserve, as Bank of America's regulator, and shared by the Treasury, that it would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment," Paulson said.
Paulson said he believed his remarks to Lewis were "appropriate." I say Paulson belongs in prison. Whether of not more American would be without their homes had not Paulson pressured Lewis and Bank of America is debatable.
More importantly, the result is irrelevant. Threatening to fire Lewis and the board of Bank of America is coercion, and coercion is a crime. The end does not justify the means for Nixon, Paulson, Bush, or FDR (the latter for confiscating gold and numerous other illegal transgressions).
Regardless of his reasons or the result (personally I think Paulson made matters far worse), the important point is Hank Paulson broke the law, and so did Lewis and Bernanke.
I spelled this out nicely on April 24, 2009 in Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis.
The case is ironclad now because Paulson has admitted threatening Lewis and Bank of America as the following article shows.
Paulson Bent to Demands of Bank CEO
Please consider Lawmakers say Paulson bent to demands of bank CEO.
Lawmakers accused former Treasury Secretary Henry Paulson on Thursday of bending to the demands of a major bank and keeping negotiations of a hefty bailout secret in his rush to stabilize financial markets last year.Selective Memory Loss
Paulson, testifying for the first time since leaving office in January after putting in place a $700 billion bank bailout program, was defiant in his response and admitted no wrongdoing.
In one particularly testy exchange, Democratic Rep. Marcy Kaptur suggested that Paulson -- the former head of Goldman Sachs -- needed to visit her home state of Ohio to see how bad the economy really is.
"I know how terrible it is, I'm telling you it would have been worse" had the government not intervened, Paulson said. Kaptur, who voted against the bailout program, responded: "If that's your best argument, that's not good enough."
Paulson acknowledged in his testimony that he pressured Bank of America CEO Kenneth Lewis to proceed with the deal despite Merrill's mounting financial losses. Paulson said he warned Lewis that Lewis might lose his job if he dropped the deal or tried to renegotiate because doing so would exhibit a "colossal lack of judgment."
At one point during the discussions, Paulson pledged government aid to help Bank of America absorb some of the losses from acquiring Merrill. Paulson said he declined to put that promise in writing because the details would have been vague and would have had to be disclosed publicly by the Treasury Department.
Rep. Edolphus Towns of New York, the panel's Democratic chairman, said Paulson was all too willing to promise Lewis money after Lewis threatened to back out on the deal. "All of this happened against a backdrop of unchecked government power, with no transparency or accountability," Towns said.
Federal Reserve Chairman Ben Bernanke has denied threatening to oust Lewis and said he never told anyone else to, either. But another Fed official suggested otherwise in an e-mail obtained by the House panel.
Jeffrey Lacker, president of the Richmond Federal Reserve Bank, said in a December 2008 e-mail that Bernanke had planned to make "even more clear" that if Bank of America backed out on the deal, "management is gone."
Threatening CEO Lewis is coercion, and pledging government aid to induce Lewis to go ahead with a deal Lewis knew was wrong is arguably bribery. Where are the indictments?
Bernanke is on the hook as well. Does anyone really believe Bernanke when he told Congress "He does not remember that part of the conversation with Mr. Lacker."
Here's the deal: People conveniently fail to remember things to prevent perjury.
For more details please see Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl".
Rep. Alan Grayson on Hank Paulson
Please consider the following video footage of Alan Grayson on MSNBC with Dylan Ratigan and Eliot Spitzer discussing Hank Paulson and the bailouts. Grayson said about former Treasury Secretary and former Goldman Sachs CEO Hank Paulson who presided over the bailout while owning hundreds of millions in Goldman stock:
"Hank Paulson never should have had that job in the first place. He had a $700 million conflict of interest and everything that he did while he was Treasury Secretary, every single thing that he did, has one explanation - what's good for Hank Paulson?"
Grayson also discusses the Federal Reserve's secret trillion dollar bailout, Ron Paul, and why transparency is necessary.
Coercion, Bribery, Conflicts of Interest
Not that this is any big secret, but add Conflicts of Interest to the charges against Paulson. We are now up to Coercion, Bribery, and Conflicts of Interest. Anyone have any other charges to level against Paulson?
Secret Sanctions on Bank of America and Citigroup
By now, nothing the Fed or Treasury does should be surprising, including secret sanctions. Please consider U.S. Regulators to BofA: Obey or Else.
Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation.Ultimate Irony For Lewis
Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease-and-desist order.
The order was imposed in early May, shortly after shareholders of the Charlotte, N.C., bank stripped Chief Executive Kenneth Lewis of his duties as chairman. Bank of America faces a series of deadlines, some at the end of July and others in August, these people said.
The MOU is the most serious procedural action taken against Bank of America by federal regulators since the financial crisis erupted.
Citigroup Inc. has been operating since last year under a similar order with the Office of the Comptroller of the Currency, according to people familiar with the matter. The company recently has been negotiating with the Federal Deposit Insurance Corp. about entering into a similar agreement with that agency, these people say.
Tensions between Bank of America and government officials have been building for several months, most notably a warning to Mr. Lewis by then-Treasury Secretary Henry Paulson that the bank's management could be pushed out if it abandoned the deal to acquire securities firm Merrill Lynch & Co., staggered at the time by massive losses.
In late January, the Federal Reserve and Office of the Comptroller of the Currency downgraded their overall ratings of the bank to "fair" from "satisfactory," according to people familiar with the matter. In a letter that was reviewed by The Wall Street Journal, the Fed criticized Bank of America's management and directors for being "overly optimistic" about risk and capital. The bank's capital position "was vulnerable" even before the Merrill deal, the Fed concluded, citing "acquisition activity" that included last year's takeover of mortgage lender Countrywide Financial Corp.
"Management has taken on significant risk, perhaps more than anticipated at the time the acquisition was proposed," a Fed official wrote in the letter, which accompanied the ratings downgrade and was sent days after the government agreed to $20 billion in aid to keep the Merrill deal on track. As a result, "more than normal supervisory attention will be required for the foreseeable future."
The MOU surprised some Bank of America executives who hadn't expected federal regulators to issue such a formal rebuke. The bank responded swiftly, with six directors resigning since May 26. The departures include O. Temple Sloan Jr., Bank of America's lead independent director, and Jackie Ward, chairman of the board's asset-quality committee.
The ultimate Irony for Lewis is that he broke the law to save his and the board's jobs by doing what Paulson asked. Then after the Merrill Lynch deal went through, the Fed and the Office of the Comptroller of the Currency rebuked Lewis and Bank of America for taking on too much risk!
This is hardball at its very finest.
I propose Bernanke, Lewis, and Paulson all share the same prison cell for the next 10 years or so. I will even throw in a ball and a bat so they can continue playing their games.
Mike "Mish" Shedlock
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