Transparency is one of the basic tenets of capital markets. Publicly-traded companies have a legal obligation to disclose material facts about the value of their company. Unless the Federal Reserve and Treasury Department muzzle them, that is. The Wall Street Journal reported today that Bank of America chief executive Ken Lewis was prompted by Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson not to discuss the financial woes of Merrill Lynch as Bank of America negotiated its government-backed purchase of Merrill.
As the story points out, as a publicly-traded company, Bank of America had a responsibility to disclose such information to its shareholders. But the government essentially told it not to. Bailing out Wall Street as a whole seemed more important, as the Fed believed that the whole financial system could collapse if BofA shareholders balked at the deal, the Journal reported. As the deputy dean of Yale Law School, who was quoted in the story, said, “Regulators are supposed to tell you to obey the law, not disobey the law.”
The downright disturbing actions by the Federal Reserve and U.S. government during the Wall Street bailout of 2008 just reached a new high (or, more accurately, low). This is just one in a series of bombshells coming out of the financial sector meltdown. Between this and the post-wreckage Merrill Lynch stories (the insane executive bonuses, Former CEO John Thain’s extravagant decorating bonanza), the bailout becomes a bigger folly every day. Or maybe a bigger tragedy.
Tags: bailout, Bank of America, Ben Bernanke, Federal Reserve, Henry Paulson, Merrill Lynch
