Skip to main content

tv   [untitled]  CSPAN  June 28, 2009 4:30pm-5:00pm EDT

4:30 pm
involved, tim geithner was very solved step-by-step in this process if not working through third parties. >> to my -- my only association with mr. geithner during this period was an occasional phone call to update him on general developments. i'm not aware of any other involvement. >> two additional things just to wrap up. did you have conversations about paulson's conversation with -- did you have a conversation with mr. paulson about his discussions with ken lewis because there's been testimony and we've heard that paulson said very clearly that he would fire ken lewis and the board and it seems to me in the reading of all this stuff is that the government became one and so perhaps what mr. paulson said was thought of as coming from you. there could be some of this coming about.
4:31 pm
so confusion comes about after the fact. >> gentleman's time has expired but the witness can answer your question, of course. >> could you describe the conversation you had with mr. paulson about his conversation with mr. lewis? >> he reported back to me that mr. lewis, as i recall, had decided not to invoking the m.a.c. and that laid open the basis for developing the transaction but, again, i never told anyone to threaten mr. lewis. >> thank you. >> i thank the gentleman. chair recognizes mr. cummings of maryland. you may proceed. >> thank you very much, mr. chairman. mr. bernanke, as i've listened to you carefully, i think i get it. i think i get it. you are so -- you were so intertwined in this thing and following up one mr. mchen try's questions it's hard to see where your participation ended and where paulson's began.
4:32 pm
and i just take you to your own statement. one of the first things you say in your background is on september 15, bank of america announced an agreement with merrill lynch. i did not play a role in arranging this transaction and no federal reserve assistance was promised or provided in connection with with that agreement. is that accurate, yes or no? >> yes. >> all right. oops well then you go on to talk about all the things you did do. i'm confused. let's talk about this whole situation with one of the things you did. this is your statement. it says in responding to the bank of america and these discussions, i, talking about yourself, expressed concern that invoking the m.a.c. would entail significant risks and then you go on to talk about that. we had mr. lewis who testified before us that he's been an experienced guy in this whole banking stuff for many, many
4:33 pm
years, he took this m.a.c. situation very seriously. and then paulson comes along and you come along, according to your own testimony, and you say, you know, i don't think that you're right on this. but basically it sounds like you did not believe in the competence of mr. lewis. i'm just finding this out today. is that right? did you think he was competent? >> yes or no. >> that's not a yes or no question. i think on this particular issue i think invoking the m.a.c. would have been a mistake and i'd like to mention, sir, the first reference was to the original september deal that i was not involved. >> yeah, but y'all wind up in the rest of it down to the end. based on your testimony. >> certainly. >> all right. now, so you felt that he was competent with regard to this issue, the m.a.c., although he was an experienced banker, although he had a fiduciary duty
4:34 pm
to his shareholders and board and i know that you are always very concerned about disclosure, right? that's a major thing, isn't it? >> certainly. >> certainly. so but the man who would be held responsible if his bank went down, you say to him when he says -- when he pulls up a material -- this m.a.c. and says, you know, what i don't do this, but i'm taking this very seriously and i think i'd better declare a m.a.c. here. so when he declares it, after all of his experiences and what have you, then you come along and say, although it's your duty to disclose certain things, although it's your duty and you're going to be the one who will get hit if this thing falls down, i'm going to put my judgment above your judgment. is that basically right? >> no, that's not right. i offered my views based on my
4:35 pm
experience as a federal reserve chairman and the advice i got from staff at the federal reserve that invoking the m.a.c. would not be a good idea for the bank of america. he was uncertain about what to do but at all times it was his decision to make and he understood that i believe. >> i don't know whether you saw his testimony but he -- i mean, the man did everything he could not to -- we got him to a point where he basically said he felt threatened but he tried to say that he wasn't threatened. there was not a person in this room who did not understand that he was threatened. you even used the word several times in this hearing. you used it. i didn't. you did. >> to say i did not threaten anyone. >> no, no, no, no, no. i said you used the words that he was threatened. maybe you have been referring to paulson and so all i'm saying to you is that i can see how we got to where we've gotten to where it appears as if we've got
4:36 pm
paulson saying -- we've got lewis saying that you may have been behind the scenes doing things, we have you saying you were behind the scenes doing things. and then -- but at the same time you come back and say, well, you know, i just gave my opinion, it's not -- it was up to him. i did not think -- and i'm asking you: do you think it was up to him when paulson comes to him and says i'm going to fire you and release your board, is that the way you would want things to happen? >> i don't know what paulson said to him. >> the gentleman's time has expired but the witness -- excuse me -- the witness should answer the gentleman's question. >> i don't know what mr. paulson said to him but it was always his decision and i did not threaten him. >> thank you. >> the chair recognizes --
4:37 pm
>> thank you, mr. chairman. >> mr. chairman. i know this whole process looks like an inquistion. we're not here to, you know, indict just to question but to try to find out the reality. i think it's a little more confrontational than should be historically but remember you are placed in that position of being under oath. i'm hearing testimony going back and forth and i want to find out how two people may perceive something differently. let me just ask you at that time or at this time, did you believe that merrill lynch was too big to fail? >> i thought very likely if merrill lynch failed it was after all bigger than lehman brothers, it would create a very serious problem in the financial markets. i did. >> so as a manager, you pretty
4:38 pm
well felt merrill lynch needed to be addressed one way or the other to keep it from going under? >> i thought letting it fail would be -- pose a serious risk although it was not clear we could have prevented it from failing. >> okay. now. you made a statement here that when someone said, did you invoking a threat or something else that if they invoked the m.a.c. there would be repercussions to management and we can pull up the record, i'm almost sure you said, no, i didn't say it that way but i did indicate that if they invoked the m.a.c. and there was, what was it, they needed assistance afterwards, that if there was this created situation where they needed assistance, then there would be problems.
4:39 pm
and that the clarification there was that it wasn't just the m.a.c. but it was if they did the m.a.c. and then needed to come to us for assistance because of that, there would be hell to be paid. that was the infrens of your statement at that time. >> that was what was in the e-mail about a conversation between us, but i don't -- i did not make that statement to mr. lewis although i don't think it's unreasonable if someone makes a decision that endangers his company that he'd be account tanl for that. >> that's why i want to clarify, mr. chairman, because you today you made the comment you felt that way and felt comfortable with that. you indicated, i thought you indicated, that you communicated that at that time, that if -- not just that if they invoked the m.a.c. but if there was assistance needed later after they invoked the m.a.c., then there would be repercussions? >> i don't believe i said that. >> mr. chairman, i would ask that testimony, because we need to clarify that because i heard something that sounds very
4:40 pm
familiar and that's why i went back to the statement about it wasn't just the m.a.c. it was the man and then if they needed assistance emergenciesment will be held responsible and i thought your statements kind of reflected this statement of the 4/20/08 statement so we can go back and see that. i'm just trying to help you clarify -- >> are you submitting something for the record? >> yes, please. >> without objection. >> you said we did not guarantee b of a anything and you said there was no dollar amount reference but could have you in this conversation, instead of saying, we will pay this much out or we'll get out of it, could there have been any other discussion that statements like,
4:41 pm
look, if there's a concern, if there's a problem here, we'll take chair of it or we'll make you whole this deal will not impact you in the long run, that we'll cover the difference. >> we commit today work with them to make sure they would be a stable company and that they would not collapse because of this issue. >> i'm trying to clarify this. so in other words, you are in a situation where you have to handle this merrill lynch problem anyways. you have what looks like a merger following. all at once they pull it apart. they're seeing it from the b.i.a. or the -- i mean the bank of america taking on this burden. you see you're going to have the burden one way or the other. safe to say it looks simpler from a management point of view to get them to take this on so
4:42 pm
you can manage this as a single piece rather than going back and forth? >> the gentleman's time has expired but if you want to put that in a question and then mr. bernanke can answer, you can have the time. >> let me finish with him. the -- you stated today if you had it all to do over again, you believe today that you would do it exactly the same. later in your testimony i am going to -- >> i'll take that as a question and answer. >> the fact you made it -- how do you explain the fact today you did add a condition and clause that you did exactly what you needed to do for what you knew at that time? does that leave you a question -- does that statement leave in the back of your mind maybe there are things you know today that you would have done differently? >> the witness may answer the question. >> i don't know of anything material that would have affected that given the powers we had and the situation at the time. >> i thank the gentleman.
4:43 pm
chair recognizes mr. clay. >> thank you, mr. chairman, and thank you chairman bernanke for coming today. you have stated -- >> would the gentleman speak directly into the microphone, thank you. >> you have stated that the fed acted appropriately regarding issues of public disclosure. you have further stated that neither you nor my member of the federal reserve ever directed, instructed or advised bank of america to withhold from public disclosure any information relating to merrill lynch, including the losses, compensation package, packages or bonuses. and i can believe that and i have found you to be a person of integrity and of the highest degree. retrospectively, looking at the developments that occurred with
4:44 pm
the whole saga of b of a, merrill lynch and the department of treasury, and looking at the losses investors both institutional and individuals absorbed, do you feel that you had some responsibility to disclose some of this information that you knew was being withheld? no, the information about the losses was the responsibility of the b of a to disclose. we were required, we, the government were required to disclose the terms of the deal within a week after it was consummated and we did that. >> at what point does the welfare of the investor become as important as the institution invested in? >> the welfare of the investor is very important and my concern was that the system would collapse, that bank of america would collapse, which would hardly be a good thing for the investors. >> that was your responsibility, then?
4:45 pm
>> my responsibility is to protect the overall financial system but i have to do that within boundaries of practice and law. >> at what point should you disclose information to the public? >> with respect to this particular issue, the law is clear that any action regarding t.a.r.p. needs to be disclosed within a week, and we did that. >> do you believe that the people were better have served by being unin formed in making their investment decisions, especially when official america knew there were misreputations in the financial status of b of a? >> well, again, those judgments were up to bank of america. our job was to try to make sure the system was stabilized. >> mr. chairman, why did you think it was nice for b of a to
4:46 pm
acquire merrill lynch when lehman had been allowed to fail? what was the thinking of saving a.i. g meryl and citigroup when these companies had failed to adequately perform and uphold their fiduciary responsibilities to their stockholders? what made these three different from lehman? >> we made extraordinary efforts to prevent lehman from failing. we were unsuccessful, partly because we could not find a merger partner. bank of america was a potential partner. they decided against it and we didn't try to coerce them to do it. we didn't have the powers to save lehman and that's why they failed, very much -- we were very concerned about it and our concerns proved to be justified. with respect to the other cases, we did everything we could to avoid a systemic failure because of the risks to the system, a.i.g. was possible to address because the large insurance
4:47 pm
company provided collateral for a loan which allowed us to provide liquidity to the financial products division which was the source of the problem. after the congress passed the t.a.r.p. legislation, it was easier to address these probingdz. if we had t.a.r.m. in september we might have been able to address lehman problem. >> was it really necessary to salvage a.i.g.? i heard your explanation but -- >> i do believe so. >> they failed, they failed themselves. >> i had no sympathy for a.i.g. and particularly for the f financial products division but my concern was if they failed the consequences would have been of worldwide banging run, several financial melt down and unknown consequences for the global economy and i didn't feel i could take that chance. >> i guess we thought the same about american automakers a few months ago. they just couldn't fail either and they couldn't go into
4:48 pm
bankruptcy but we know a different story now. thank you, mr. chairman, for your responses. mr. chairman i yield back. >> the chair recognizes mr. fortenbure. >> thank you, mr. chairman. thank you, mr. bernanke, for your appearance here today. i read your testimony and it appears reasonable for your role in the merger and the advocacy of certain additional bailout funds. however, while that is the narrow purpose of this hearing is to unpack whether or not there were any conflicts there and certainly you can understand the cynicism in that we have conflicting impressions from you and mr. lewis about the nature of this deal. what is at the heart of the matter is the fed's fut role as a systemic regulator. let me go back to a few points just touched on in that regard. do you believe it was in the
4:49 pm
best interests of this country for merrill lynch and bank of america to be merged and to receive the bailout funds they received, first the 25 billion between the two, and later the 20 billion as bank of america expressed concern or waffling about the potential deal? >> i think it was critical we avoided the failure of those terms and the implications it would have had for the financial system. we did so in a way to protect the taxpayer and again i think we did the right thing. >> one thing that concerns me about this, though, is information we have from the fdic chairman who wrote to you prior to the final bailout monies being received by bank of america, she said der ben, strong discomfort with this deal for all of the reasons you and i have discussed. what did you discuss? >> my recollection is that her concern was not about taking action to stabilize b of a.
4:50 pm
her concern was fdic would have exposure and she was concerned in particular because the transaction involved not only a bank but also an investment bang which was not in her sphere of responsibility so it was the details of her transaction i understand were her concern, not the basic idea of taking steps to stabilize the company. >> currently we have a situation, it's my understanding, where ten major banks control about 50% of deposited assets in this country, bank of america being the largest. is this a systemic risk? >> we have a large banks and under the current system and particularly in the current circumstances with financial conditions the way they are, the failure of one of those firms would be very dangerous for the american economy and that's why i believe the centerpiece of financial regulatory reform should be steps to get rid of too big to fail to define measures that allow a large firm to fail when it is appropriate
4:51 pm
but to do so in a way that doesn't bring everything else down with it. >> i agree with that assessment but it's pointing i think to the need to in whatever future regulatory framework we have to consider the fact that we have ten banks controlling a majority of assets in this country and that systemic risk is very real. do you agree with that? >> certainly it's real now but i think there are steps to reduce the risk associated with those things. >> what would be those steps? >> well, greater oversight, capital and supervision, resolution regime that -- >> that assumes failure. >> in the case of failure, that's correct, but that would create more market discipline because lenders to those banks would know that they would not necessarily be made whole in the case of a failure and they would exert more discipline on those companies. >> the point i'm driving at is: are these too big? are these banks too big? >> i think it's important bands have no incentive that banks
4:52 pm
want to grow just to become too big to fail but large banks probably have other economic purposes, including global transaction networks and the like. i doubt we can go back to the world with very small banks. >> but we are concerned this level of concentration in the hands of too few is a potential problem. >> it's a legitimate problem, congressman, absolutely. >> mr. chairman, i'd like to yield the remainder of my time to mr. burton of indiana. >> the gentleman has the remainder of the time. it's about a minute. >> thank you very much. >> you indicated the comment that he made that at the request of chairman bernanke was changed later on by mr. paulson. but what he said was, and i think this ought to be in the record, his prediction of what
4:53 pm
could happen, talking about you, his prediction of what could happen to lewis and the board was his language was paulson's language that based on what he knew to be the fed's strong opposition to bank of america attempting to renounce the deal. you were the fed. and he said it was based upon the knowledge that the fed's strong opposition to bank of america attempting to renounce the deal was something that he knew to be the case and that he was in effect speaking on behalf of what you sent him. >> the gentleman's time has expired. chairman bernanke, you are directed to answer the question, though. >> we were strongly opposed to that action for the reasons i've described. >> is that your answer? >> yes. >> i thank the gentleman. the chair now recognizes mr. -- >> thank you, mr. chairman. mr. bernanke, i have one comment and two questions. my comment is thank you for your
4:54 pm
incredible service in very tur pwu lent times. we all appreciate it. two questions, one about mr. lewis and then a following up on what mr. fortenberry was asking about. mr. lewis was here with a number of different stories on a single transaction. he told the shareholders that this meryl deal was a great deal for them and persisted in that story even in december after he found out about a $9 billion additional deterioration. frankly my amazement and shock he never bothered to tell the shareholders the news that led him to the next assertion he made, that that was so dire that he might invoking the nuclear option of the m.a.c. clause. then he told us basically that using his words he didn't use the words threat but he said that there was heavy pressure from the fed and treasury to go
4:55 pm
through with this deal with the assurance that the american taxpayer through the fed and treasury would back up any of the toxic assets from merrill lynch. i'll just ask one specific question about that. one of his assertions to the board was that the treasury and fed have confirmed they will provide assistance to the corporation to restore capital and project the corporation against the adverse impact of the merrill lynch assets and he went on to say the corporation can rely on the fed and treasury to complete and deliver the promised support by january 20, the date scheduled for the release of earns by the corporation. this your recollection is that accurate statement by mr. lewis? >> we did indicate we would work with him in good faith to develop a transaction, develop a package to preseveral stability of the company and we proposed to do that by january 20. >> that included backing up the toxic assets on meryl lynn ach balance sheet. >> there were no specifics how
4:56 pm
to do it. there were different possible approaches in the event that -- would not even be consummated. >> but what he was specifically referring to was the news they were aware of this merrill lynch had far more in toxic assets than had been disclosed to shareholders in the early part of december. is it your recollection ash shushs he gave his board that the fed and treasury would back up the toxic assets was accurate. >> he knew in the case of citi we could use both capital and ring fence so that was an options. >> started. >> you widely stated in my view that we do need a new regime and there's really two approaches that can be taken and the congress has to make a judgment which is the better one to go with. one is a supersized regulator or
4:57 pm
some entity with the capacity to monitor the risk of these huge con gloom mere rats that bring us all with them when they go down. that's one approach. the other is to take the view that an institution is too big to fail, it's too big to exist. the virtue of that, frankly, is that it brings them down to a size where we don't have to deepened on the vigilance of regulators as being overcome by the influence of the financial industry. so my question to you is: does it make sense for congress to pursue a policy that says if an institution is too big to fail without threat to the economy, it is in fact too big to exist and instead of regulating it, we should break it up? >> well, there are two options. one is to aallow large banks but protect the economy if one comes to the brink of failure which is what the treasury's proposal includes. the other is to restrict the size of banks.
4:58 pm
i think it's legitimate to discuss both options but i would point out that very large banks do have an economic function, a global reach, diversity of activities, but congress may wish to look at different options. i don't want to prejudge what you will be deliberating. >> thank you. i yield back. >> gentleman yields back. when our colleagues on the republican side have -- others show up, they'll be recognized. we'll recognize -- >> thank you for your testimony and i have listened to a lot of my colleagues use words like threats, even lies, lying, the reality is that if a judge cautions an attorney that certain conduct could constitute
4:59 pm
a threat, that's not -- that's laying out what the rules are? i can't see how people are jumping to conclusions that by either yourself or the secretary of the treasury informing a bank officer or board that there were powers of the government to take action of a certain way which could constitute removal of the c.e.o. or the board, that doesn't constitute a threat. that's informing them of what the powers are. aren't it? >> as long as the reason for exerting that power is legitimate, i.e., that the manager took actions that prejudiced his own company. >> and then that could be -- that would be an issue that later on could be determined but nevertheless it's not a threat, it's telling the truth? these are the confines of the power we have ask we're willing to use it. i'm glad somebody told them that if they did. i don't know if they did because i seriously doubt whether they did. i listened to mr. louis


info Stream Only

Uploaded by TV Archive on