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Lawmakers accuse Paulson of bending to bank CEO
WASHINGTON (AP) - House lawmakers on Thursday accused former Treasury Secretary Henry Paulson of bending to the demands of a major bank and keeping negotiations of a hefty bailout secret in his rush to stabilize the financial markets last year.
Paulson was defiant in his responses and admitted no wrongdoing. "No one was tougher than I was in protecting the American taxpayer," he told the House Oversight and Government Reform Committee.
Paulson acknowledged in his testimony that last year he pressured Bank of America Corp. to go through with its plans to buy Merrill Lynch Co. despite mounting financial losses. Paulson said he had warned the bank's CEO, Kenneth Lewis, that Lewis could lose his job if he dropped the deal or tried to renegotiate because doing so would exhibit a "colossal lack of judgment."
At one point during the discussions, Paulson pledged government aid to help Bank of America absorb some of the losses from acquiring Merrill. Paulson said he declined to put that promise in writing because the details would have been vague and would have had to be disclosed publicly by the Treasury Department.
Paulson said he never told Lewis to hide potential losses from shareholders, but kept negotiations private so as to prevent fluctuations in the market.
"We didn't want to overly scare people and make it worse," he said.
Bank of America, which went through with the merger, ultimately accepted $45 billion in federal aid, including $20 billion tied to the merger.
Republicans and Democrats alike blamed Paulson for keeping Congress in the dark. Rep. Jim Jordan, R-Ohio, accused Paulson of engaging in a "pattern of deception," while Rep. Dennis Kucinich, D-Ohio, said Paulson turned a blind eye to evidence that the bank was withholding information from its shareholders.
Rep. Edolphus Towns of New York, the panel's Democratic chairman, said Paulson was all too willing to promise Lewis money after Lewis threatened to back out on the deal.
"All of this happened against a backdrop of unchecked government power, with no transparency or accountability," Towns said.
Paulson said he believes his handling of the crisis, including the Merrill Lynch deal, was appropriate and saved the nation from "great peril." He told the panel that had the government not intervened and promised the cash cushion to banks, the economy would be much worse.
"I think everyone here understands that government has been forced to do things," Paulson said. "I think forced to do things not only because of an unprecedented crisis but forced to do things because we didn't have the tools we needed."
Congressman Brian Bilbray spoke with KUSI about the today's hearing.
To view this segment, please click on the video icon above. (Copyright 2009 by The Associated Press. All Rights Reserved.)
Story Updated: Jul 16, 2009 at 10:22 AM PST