Revealing Emails

The House Oversight and Government Reform Committee was not able to prove last week that Federal Reserve Board Chairman Ben Bernanke forced Bank of America CEO Ken Lewis to go ahead with the Merrill Lynch deal, but the e-mails they subpoenaed from the central bank offered a rare behind-the-scenes perspective on the personalities of the players at the agencies.For example, in late September, Meg McConnell, who was Tim Geithner's chief of staff at the time when Geithner (now the Treasury secretary) was the president of the New York Fed, sent him an e-mail urging they send around crisis slides and other data to show the "severity of the situation."

McConnell's frustration was clear. "At this point I have [the] sense that the hearts and minds war in Iraq was handled better than it has been in this crisis, particularly within the Fed system. I don't think this would be hard to fix, and it seems silly not to just fix it immediately," she wrote.

She went on to complain about staff being "stretched" and offered to take charge. "Since managing our human capital doesn't seem to be one of our strong suits, I'm happy to explore where/how we could best use people if it won't happen otherwise."

Other e-mails were equally colorful. On Jan. 8, Fed Gov. Kevin Warsh described a conference call he had with Comptroller of the Currency John Dugan and Federal Deposit Insurance Corp. Chairman Sheila Bair.

"No surprises — Dugan is fine; Sheila hates it and doesn't want to play," Warsh wrote. "She'd rather let B of A limp along to tranche 2 of Tarp; she claims no responsibility for ML or nonbank subs."

Jennifer Burns, the vice president of the Richmond Fed, responded to questions about whether B of A was threatening to scuttle the Merrill deal in order to get more government aid.

"I don't think they were every really trying to shake anyone down," she wrote. "We paint a bad picture of them — they are really difficult and often unlikeable — but I think they have seen what has happened with other firms that have made bad acquisitions and they are worried. Me too!"

BlackRock Theory

While Bernanke caught the expected flak from lawmakers during the hearing, at least one new — and conspiratorial — accusation was floated.Rep. Marcy Kaptur, D-Ohio., maintained that the Fed's contracts with the investment management firm BlackRock were suspect. She harbored special ire for BlackRock's CEO, Larry Fink, whom she accused of "inventing the subprime instrument." (Fink was an early trader of MBS.)

Kaptur then linked Fink's MBS background to a 2004 mortgage fraud probe by the Federal Bureau of Investigation. She suggested the FBI investigate BlackRock, and threw in the factoid that Merrill Lynch — and therefore now B of A — owns a 49% stake in the firm, for good measure.

"Will you permit the FBI access to the mortgage instruments being managed by BlackRock as the Fed contracts are executed and fulfilled?" Kaptur asked a bewildered Bernanke.

The Fed chief paused, slack-jawed, before responding, "If there's a reason for the FBI to investigate and the FBI has a right to investigate, we would not stand in the way of an appropriate investigation."

Adviser for Bair

Despite the White House proposal to transfer consumer oversight out of the bank regulators and into a separate agency — or maybe because of it — the FDIC announced last week that it is hiring an official devoted to the agency's consumer policies.The FDIC appointed Ellen Lazar, who has held a variety of consumer-focused jobs, including in the Treasury Department, to be Bair's senior adviser for consumer policy. Lazar was formerly a partner at Venture Philanthropy Partners, a Washington organization that invests in nonprofit companies.

Roundtable Hire

Jill Hershey has joined the Financial Services Roundtable, where she will lobby on regulatory reform.Hershey previously lobbied on a range of financial services issues, including tax, securities regulation, bankruptcy, derivatives and pension regulation, at the Securities Industry and Financial Markets Association.

"We are working specifically on the consumer protection piece … we are certainly for enhanced consumer protection but we don't think it should be separated. We are for filling in the gaps," she said. "We also have some concerns with technical pieces of the proposal like how it would be funded."

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