Is Gov’t Already Managing Banks?

Many are calling for outright nationalization of troubled banks, but is the government already calling the shots behind the curtain? On December 17, Ken Lewis, the CEO of Bank of America, flew to Washington to tell Henry Paulson and Ben Bernanke that he wanted to back out of BofA’s takeover of Merrill Lynch, which had lost $13.3 billion over the previous two months. Paulson and Bernanke were friendly in encouraging Lewis to stand by the deal, but two days later, they took a harder line. According to The Wall Street Journal, “Mr. Bernanke said Bank of America had no justification for ditching Merrill, according to people who heard the remarks. A Federal Reserve official warned that if Mr. Lewis did so and needed more government money down the road, Bank of America could expect regulators to think hard about their confidence in management.” Regulators said they would consider ousting executives and directors. “The threats left no doubt: The federal government saw itself as firmly in charge of U.S. financial institutions propped up since October by infusions of taxpayer-funded capital.”