The View From 1776
Friday, April 24, 2009
When The Government Runs the Economy
When Congressman Barney Frank and Senator Chris Dodd call the shots, government regulators demand that nominally private companies lie to the public.
In its headline story for the April 23, 2009, edition, the Wall Street Journal reports:
Lewis Testifies U.S. Urged Silence on Deal
Bank of America Chief Says Bernanke, Paulson Barred Disclosure of Merrill Woes Because of Fears for Financial System
Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co.—a deal that later triggered a government bailout of BofA—according to testimony by Kenneth Lewis, the bank’s chief executive…
As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren’t normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill—which eventually totaled $15.84 billion for the fourth quarter—could have given BofA’s shareholders an opportunity to stop the deal and let Merrill collapse instead.
Maggie’s Farm website provides a link to a similar story of government regulators’ pressure to lie to the public, pressure which may have played a role in the suicide of Freddie Mac’s CFO: