WATCH: Bernanke Vs. Issa

Ben Bernanke spent the morning on Capitol Hill getting grilled by the House, and it wasn't pretty.

The issue was Bernanke's role in orchestrating Bank of America's acquisition of Merrill Lynch last year. Rep. Darrell Issa issued a report on Wednesday saying that Bernanke covered up the role he played in the "shotgun wedding."

According to Issa, Bernanke threatened BofA CEO Lewis and the company's board with firing if they invoked the so-called material adverse change clause, or MAC, to wiggle out of the deal. Because Merrill Lynch's finances were increasingly deteriorating in the months that BofA was negotiating the deal, BofA might have used the clause say there was a material change with the company, and so call off the acquisition.

The Fed worried that nullifying the deal would have posed a systemic risk on Wall Street, similar to the huge collapse of Lehman Brothers. But Bernanke wholeheartedly denied pressuring BofA's Lewis or the board to go through with the deal.

But Issa pulled out a supposed smoking gun. In December, the President of the Federal Reserve Bank of Richmond, Virginia, Jeffrey Lacker, summarized a conversation he had with Bernanke over the issue:

"Just had a long talk with Ben (Bernanke). Says that they think the MAC threat is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone."

It implies a threat, says Issa.

WATCH The heated exchange between Bernanke and Issa:

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Comments

[nomorefed]

who can pay for this stimulus??? Your children, obviously. Why are banks so eager to return

TARP? maybe it was all a huge sc4m??

good articles: http://investmintideas.blogspot.com/ different perspective

Seems to me that Lewis is trying to save his butt here and that Bernanke is a convenient scape-goat that he can turn on, and that he has asked Issa to do his dirty work for him. Bernanke never threatened anyone from what I can tell.

[nomorefed]

50 days in a row of increasing gas prices and STILL no rate hike?

who can pay for this stimulus??? Your children, obviously. Why are banks so eager to return

TARP? maybe it was all a huge sc4m??

good articles: http://investmintideas.blogspot.com/ different perspective

we need to stop wall street & fed. Don't shake up wall street; no, shake them down.

GS shuld be at 80>

[spiritpony1]

NOW, if we are gonna talk about HYPOCRITES, ISSA IS TOP DOG OF THE H'S.---------I am not defending Bernanke one way or other---------facts NOT in------but Issa is just being an adversarial window-dresser------------populist for the people -----HARDLY------hey, is was BUSH (THAT ISSA constantly defended) who appointed Bernanke IN THE FIRST PLACE ------Issa can go to h........ask the folks in Cal. who follow his slimey stuff------

[plaidsportcoat]

he reminds me of rick santorum!

[joebaggadonuts]

Seems to me that Lewis is trying to save his butt here and that Bernanke is a convenient scape-goat that he can turn on, and that he has asked Issa to do his dirty work for him. Bernanke never threatened anyone from what I can tell.

What it seems Ben did was state the truth, that if Lewis used the MAC clause, and his bank also needed government help, the board of Bank of America would boot Lewis because it would leave BAC without a government safety net. What Ben was doing was predicting the future for his other Fed members who apparently were not seeing what was happening. The memo was vague.

All this does is teach us all to be careful what we say in Email, lest creatures of opportunity find apparent faults lines they can exploit against us or others.