This content is from: Portfolio

Andrew Cuomo, Financial Reformer

Arguably, the ambitious New York attorney general's office has done more to reshape the U.S. financial industry than any other government entity.

Challenging the long-sacrosanct secrecy of the Federal Reserve Board, to say nothing of the integrity of the Fed’s chairman, would be considered lèse-majesté of the highest order in Washington. Nevertheless, this summer one state’s attorney general — Andrew Cuomo of New York — had the temerity to slip internal Fed memos concerning Bank of America Corp.’s acquisition of Merrill Lynch & Co., along with depositions about the takeover from then–BofA chairman Kenneth Lewis and former Treasury secretary Henry Paulson Jr., to the House Committee on Oversight and Reform.

That was all the ammunition the committee’s chairman, Brooklyn Democrat Edolphus Towns, a longtime critic of Wall Street, needed to galvanize a hearing titled: "Bank of America and Merrill Lynch: How Did a Private Deal Turn into a Federal Bailout?" To his intense discomfort, Fed chairman Ben Bernanke testified before the committee on June 25 in room 2514 of the Rayburn House office building. The issue was highly charged: Did Bernanke conceal BofA’s $14 billion in losses from taxpayers, who effectively financed the BofA–Merrill merger through federal bailout funds?

No sooner did the Fed chairman conclude his brief and defensive opening remarks — he used the phrase "I did not" three times — than Towns drew a bead on him.

"Chairman Bernanke," he said,"did you instruct Hank Paulson to tell Ken Lewis that he and his board would be fired if they backed out of the Merrill deal?"

"I did not instruct Mr. Paulson or anyone else to convey such a threat to Mr. Lewis," responded Bernanke, his voice quavering slightly.

"Well, I understand that Mr. Paulson told Mr. Cuomo that you did," Towns shot back. "I just wanted to share that with you."

Over the next hour and a half, as the mostly hostile questioning dragged on, Bernanke’s shoulders slumped and he crossed his arms defensively. Ultimately, the head of the most powerful central bank in the world meekly conceded, "I don’t recall exactly what was said."

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