Hank Paulson Gets Grilled

As a follow up to our to our “Ken Lewis - Its Not My Fault” story -

On Capitol Hill early Wednesday, former U.S. Treasury Secretary Hank Paulson defended his response to the first wave of the financial Tsunami that struck our economy last fall. His stance: while actions may have been imperfect, the rescue was necessary to spare the U.S. financial market from a total collapse.

In addition, Mr. Paulson was on the “hot seat” over against allegations that he and Federal Reserve Chairman Ben Bernanke pressured Bank of America (NYSE:BAC) into acquiring Merrill Lynch, even though there were mounting financial losses at Merrill, which were ultimately absorbed by BAC’s stockholders.

In the end, BAC received $45 billion from the government’s financial bailout program, $20 billion of which was linked to the Merrill Lynch acquisition.

Mr. Paulson stated that he believed these were his remarks to Mr. Lewis: “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,” and that by referring to the Federal Reserve’s supervisory powers, Mr. Paulson stated, “I intended to deliver a strong message reinforcing the view that had been consistently expressed by the Federal Reserve that as BACs regulator, it would be unthinkable for BAC to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment.”

So far, Mr. Bernanke has denied allegations that he threatened to oust BAC’s CEO Kenneth Lewis if the takeover of Merrill Lynch was not consummated.

Considering last fall’s $700 billion bailout for financial institutions last fall under Paulson’s direction and adding $787 billion stimulus package requested by President Barack Obama in February 2009, the White House and Congress are debating what should be the government’s next step in handing the worst economic crisis in decades, as foreclosures rise and unemployment figures are projected to top 10% during 2Q09.

However, whatever the outcome will be, does it seem rational that the commission will be given $5 million to complete its work on “who said what to whom and when” by Dec. 15, 2010 considering how many are unemployed presently?

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