Ken Lewis: Got Your G-IV Fueled Yet?
Courtesy of Karl Denninger at The Market Ticker
New documents in the Bank of America Corp. investigation show that chief executive Ken Lewis apparently misled federal officials when he asked them to cough up $20 billion and other financial incentives to keep him from canceling the bank’s merger with Merrill Lynch & Co., Inc.
You have to read this one…… including the follow-through link here:
In the interview with investigators, Mayopoulos said he met with chief financial officer Joe Price and then strategy executive Greg Curl on Dec. 1, four days before the shareholder vote, the sources said. The executives asked him if the bank had met the conditions of a Material Adverse Change clause, or MAC – circumstances that would allow the bank to get out of the Merrill deal because of rising losses. Mayopoulos said the bank had not met the conditions, the sources said.
The problem here is that on December 17th Lewis called Paulson and effectively strong-armed him and Bernanke into giving the bank a $20 billion federal guarantee to induce him to close.
Oh, and the attorney who said "no, that won’t work"? He left under "undisclosed circumstances" (or was it – the Yahoo linked story says: "Mayopoulos was fired was fired days before Lewis told the Feds he intended to "call the MAC.")
It is alleged that Lewis wasn’t exactly candid with Bernanke and Paulson:
Lewis also did not tell the feds that his own lawyer had advised that there were no grounds to invoke the MAC. The lack of grounds, according to one source close to the deal, was because the merger agreement specifically stated that losses on transactions made prior to the agreement could not be counted as a reason to call a material adverse change. And the bulk of Merrill’s losses were from prior transactions.
There’s a whole host of questions here, the first of which has to be simply whether it’s illegal to be "aggressive" in this sort of a fashion in dealings with the government and Fed. Can you claim you have grounds for something when you don’t? Negotiation is often a hard-nosed business, and this wouldn’t be the first time that someone represented they were going to do something when they had no real intention of doing so (as they knew they couldn’t) as a negotiating tactic.
I don’t know the answer to that question, but this certainly does raise the issue of whether we should be backstopping any financial entity under any circumstance whatsoever, as opposed to backstopping depositors via the FDIC and simply telling firms that blow up "have a nice day!"
Whether the law was broken or not, this much is clear: there was at least one apparent instance where unsupportable claims were made to garner advantage at the taxpayer’s expense.
If the law was broken then indictments must issue, but the simplest way to prevent this going forward is to write into statute an explicit prohibition on the use of taxpayer funds for bailouts of this sort – irrespective of the circumstance.
This will place everyone on notice that "if you screw up, you blow up – no exceptions" – and end the game of playing "I have a nuclear financial device and if you don’t pay me off I’m going to blow myself – and you – to smithereens."
THAT sort of game is the true problem, and that it "works" is an outrage that we must put a stop to.
