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Today's Outrage: Bank of America's Secret Backroom Bailout

Posted Jan 15, 2009 01:59pm EST by Henry Blodget in Investing, Recession, Banking, Election
Related: bac, ^dji, ^gspc

In mid-December, the WSJ tells us, Bank of America (BAC) went to Hank Paulson and threatened that if he didn't give the firm another TARP bailout, they'd abandon the Merrill Lynch deal and cripple the financial system.  Paulson then apparently spent more money he didn't have, promising that he would rescue BAC yet again. (This a month or so after an annoyed Ken Lewis said he didn't want or need the original TARP infusion).

There is only one word to describe this: Outrageous. Aaron and I discuss what happened in the accompanying piece with Joe Nocera, Business Columnist for the New York Times. Talking about the nation’s banking system, Nocera sums it up nicely: They’re “not on our side.”

BAC CEO Ken Lewis decided to buy Merrill Lynch. No one forced him to do it.  If it was such a bad decision that it threatened to kill the firm, he should resign in disgrace (or, if he refuses to do so, he should be sacked).  It's not as though he didn't have plenty of warning.

If Hank Paulson promised Bank of America more money, meanwhile, both he and BAC should have disclosed this immediately. This is highly material information. It's also NOT a private deal. It's a government deal. The public deserves to know about this instantly.

Taxpayers should be furious at how they and their money are being treated.  Bank of America did not buy Merrill Lynch for the good of the country: It bought it because Ken Lewis thought, wrongly, that he was getting a deal.  Ken Lewis should be held accountable for this. Hank Paulson, meanwhile, should immediately disclose exactly what this secret deal was, when he made it, and why.

See also from ClusterStock: Bank of America to Get MORE Bailout Cash

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