WASHINGTON — House lawmakers lambasted former Treasury Secretary Henry Paulson and Bank of America Corp. chief executive Kenneth Lewis on Thursday, suggesting officials looked the other way as major mistakes at the bank required a $20 billion bailout of the firm at the expense of taxpayers.
"While all of this was going on, the American people, investors and the Congress were kept in the dark," said Rep. Edolphus Towns, D-N.Y., suggesting negotiations over the bank completing its deal for Merrill Lynch & Co. was a "good old-fashioned Brooklyn shakedown."
Rep. Dennis Kucinich, D-Ohio, citing internal Federal Reserve documents obtained by the committee, said Paulson and Fed Chairman Ben Bernanke ignored evidence that bank management had withheld material information from shareholders, as well as indications that Lewis' management of Bank of America "was seriously deficient."
"The biggest, most powerful bankers have essentially received a free ride at taxpayers' expense," Kucinich said.
Rep. Jim Jordan, R-Ohio, was more blunt, accusing Paulson and Bernanke "of a clear pattern of deception and intimidation."
The comments came at a hearing before the House Committee on Oversight and Government Reform, which is chaired by Towns. The panel has been investigating the tense negotiations last December between top government officials and Bank of America after the bank threatened to step away from its deal to purchase Merrill Lynch & Co.
Paulson, in his first appearance on Capitol Hill since leaving his Treasury post in January, defended the government's actions. Describing the financial markets at the time as being driven by "fear and uncertainty," Paulson said it was appropriate for the government to ensure that Bank of America did go through with the deal.
"In my view...the interests of the nation and Bank of America were aligned with respect to the closing of the Merrill Lynch transaction," Paulson said.
Allowing the merger to fail, he continued, could have caused "significant disruption to the interbank and credit markets which would have rippled out to financial institutions broadly."
Despite his aggressive testimony, Paulson was repeatedly put on the defensive by lawmakers eager to hold his feet to the fire over the entirety of his actions during the financial crisis. Repeatedly interrupting Paulson to get him to speak into the microphone, lawmakers accused him of misleading Congress last September in order to secure passage of the $700 billion financial rescue plan.
When Paulson said he could not remember the specifics of conversations with Bernanke over whether to threaten to fire Lewis — echoing Bernanke's comments before the panel last month — Rep. Dan Burton, R-Ind., scoffed.
"It's interesting both you and Mr. Bernanke can't remember," Burton said.
Lewis, who appeared before the Oversight panel last month, was also a target. Towns said Lewis "manipulated" the government's urge to throw money at financial firms,
"He never had to disclose $12 billion in Merrill Lynch losses... He never had to ask the shareholders to reconsider the transaction," Towns said. "In the end, Mr. Lewis got everything he wanted."
Kucinich pressed Paulson repeatedly on why he did not replace Bank of America management, an idea Paulson dismissed as unnecessary in light of the fact that the bank went through with the merger after receiving the government aid. Paulson also downplayed Kucinich's contention that Bank of America may have illegally withheld information from shareholders.
"I have not seen evidence of an illegal action," Paulson said.
The Ohio Democrat was not mollified.
"Not a single CEO of a systemically significant bank was removed from his job by government action for a misdeed or mistake," Kucinich said.