Lawmakers Blast Paulson for His Moves Amid Financial Crisis
Friday, July 17, 2009
Former Treasury secretary Henry M. Paulson Jr. yesterday was lectured, insulted, blamed and excoriated by House Democrats and Republicans still angry about the Bush administration's handling of the financial crisis.
Months of pent-up frustrations boiled over as lawmakers called on Paulson to account for a litany of perceived offenses: misleading Congress to gain approval of the $700 billion rescue program, investing in banks on overly generous terms, failing to help homeowners facing foreclosure and allowing the nation to fall into economic crisis.
"You ought to come visit Ohio and see the results of your handiwork," Rep. Marcy Kaptur (D) told Paulson at the end of a particularly hot exchange, referring to the large number of her constituents who face foreclosure and eviction.
Paulson at times appeared stunned and even offended by the vitriol. He said that the government had to intervene in the financial system to prevent an even deeper economic crisis and that the actions he took were appropriate and helpful.
"No one was tougher than I was in trying to protect the American taxpayer," he said.
The hearing before the House Committee on Oversight and Government Reform was convened as part of an investigation into one episode in the crisis: the government's push to secure the acquisition of Merrill Lynch by Bank of America. The companies struck a deal in September to merge without government aid but only completed the deal in January after the Treasury agreed to invest $20 billion and to help limit Bank of America's losses on a portfolio of troubled loans.
The committee previously heard from Bank of America chief executive Kenneth D. Lewis and Federal Reserve Chairman Ben S. Bernanke. Paulson's testimony largely corroborated theirs. By Lewis and Bernanke's accounts, the bank got cold feet. Paulson, after consulting with Bernanke, warned Lewis that senior management could be removed if the bank walked away, and Paulson promised Lewis the necessary financial support to move ahead. A deal was worked out and a crisis was averted.
Democrats on the committee have pursued the theory that Lewis manipulated the government into providing additional aid by threatening to walk. Republicans have countered that the government forced Bank of America to complete a deal the company no longer wanted. Members of both parties have questioned why the bank and regulators failed to disclose information to the public about their negotiations. The deal was not announced until January, after details had been worked out, although the initial agreement was reached in December.
"The problem is that while all of this was going on, the American people, investors and economists were kept in the dark," the committee's chairman, Rep. Edolphus Towns (D-N.Y.), said yesterday. "There was no oversight to determine whether this arrangement made sense. In my view, this is unacceptable and must be prevented from happening in the future."
The committee increasingly is focused on internal Fed documents that appear to show that other regulatory agencies were intentionally kept out of the loop, including the Securities and Exchange Commission and an interagency panel created by Congress to coordinate the government's response to the crisis, the Financial Stability Oversight Board.
Towns said his committee would next hear testimony from those bodies.