I'm trying to get my mind around the correct thinking on the Bank of America Corp.'s (NYSE:BAC) no-disclosure matter, as reported in Thursday's Wall Street Journal. Here are the presuppositions. Big mistake to let Lehman Brothers Holdings Inc. collapse. Big, big mistake. Banks, being insolvent, are bad, and bank executives, shareholders and creditors need to feel pain. Treasury needs to tell the banks in no uncertain terms to step up and help the country, or face the firing squad. Oh, and banks should be smaller, no longer too big to fail.
So the government, eager not to allow another Lehman, convinces BofA, notably CEO Ken Lewis who's a big shopper anyway, to buy Merill Lynch & Co., after about 15 minutes of due diligence. Lewis is feeling patriotic and chest-thumpingly powerful. Regulators, Messrs. Bernanke and Paulson (where's Tim Geithner?), are vastly relieved for two reasons: a) Merrill is off the table and b) BofA is now bigger, which in regulatory-land, is often viewed as better, though that may be changing. Alas, Merrill is a prime turkey that starts smelling to high heaven. Lewis tries to give it back, but Bernanke and Paulson (all this according to Lewis testimony) say no, you've got to keep it and take one for America. If you don't, we'll fire you and, this is implied, take over your bank. And you can't tell anyone, like the press or those folks at the Securities and Exchange Commission. This conversation never happened. Oh no, that's another scandal.
So the correct thinking on this is that Paulson and Bernanke (bad) sinned by ordering Lewis (very bad) not to disclose to shareholders (very very bad), in order to save the country from another Lehman (good), effectively punishing (very good) BofA shareholders and debtholders and nudging the bank down the path toward insolvency and nationalization (very very good), which would resolve the financial crisis much faster (miraculous) than coddling execs and rewarding miscreants who created this mess in the first place (I give up). Maybe we should give everyone medals and go home. Oh no, that's yet another scandal. - Robert Teitelman
See story from The Wall Street Journal
See related BofA-Merrill Lynch exodus Dealwatch from TheDeal.com
Robert Teitelman is the editor in chief of The Deal.
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