Thursday, June 25, 2009

"Rock Star" Ben Bernanke Holds Up Under Congressional Fire

Ben Bernanke faced hostile fire from Congressmen of both parties Thursday as the inquiries into the government's role in the Bank of America-Merrill Lynch deal continue.
Bernanke steadfastly defended his actions, and the Fed's action, during that dark chapter in American financial history. "The Federal Reserve acted with the highest integrity throughout the discussions with Bank of America regarding that company's acquisition of Merrill Lynch," Bernanke said in prepared testimony.

The chairman also denied threatening BofA CEO Ken Lewis for trying to get out of the deal in December, amid mounting losses in Merrill's mortgage-backed portfolio.

Bernanke gave a good accounting of himself, judging by the stock market's reaction. Another successful Treasury auction and month- and quarter-end considerations probably didn't hurt, but investors could take solace in Bernanke's testimony, says Syd Finkelstein, a professor of management at Dartmouth's Tuck School.

"Ben was a rock star," Finkelstein says. "He took one shot after another [and] displayed tremendous credibility. It's tough to walk away and not believe everything he said was truthful and accurate."

Still, the co-author of Think Again and Why Smart Executives Fail, admitted "there's still some missing data" on the question of who said what to whom. In an ideal world, Bernanke, Hank Paulson and Ken Lewis would all testify at the same time.

While that's highly unlikely to occur, Oversight Committee Chairman Edolphus Towns (D-NY) did conclude Thursday's hearing by saying the investigation will continue.

Among the still unanswered questions:

- Was Ken Lewis victimized by overzealous government bureaucrats who forced him to do the Merrill deal (Paulson and Bernanke)? Or did Lewis threaten to back out of the deal as a way to exert promises of more bailout money, which BofA ultimately did receive?
- What role did the SEC and FDIC play in the transaction?
Is Bernanke being used as a pawn in the political fight over whether the Fed should become the "systemic risk" regulator?
- Will Bernanke be reappointed to another term, and did today's appearance effect President Obama's decision either way?
- Why didn't Congress exert any oversight of the TARP funds to begin with? (Don't hold your breath for Congress to get to far with this one.)

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