Ken Lewis Says that Paulson and Bernanke Threatened Him to Keep Mum on Merrill Lynch IMploding

It looks like the former Treasure Secretary, and the current Chairman of the Federal Reserve pressured Lewis to ignore the normal disclosure requirements to the SEC and his shareholders:.

Bank of America Chief Executive Kenneth Lewis told the New York attorney general he believed former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke wanted him to keep quiet about the worsening terms of the bank's acquisition of Merrill Lynch, according to testimony reviewed by The Wall Street Journal.

This is actually a big deal, and while I still think that Lewis is an idiot who should be fired for buying Countrywide Financial, it casts a far more sinister light of the involvement of the people who were then two most senior finance officials in the US.

I would note that Paulson has denied this, though the circumstances seem fairly clear:

The Journal said in Thursday's edition that Lewis doesn't say in the transcript that he was told specifically to remain silent about Merrill's burgeoning losses. But the paper quotes Lewis as testifying that disclosing that information "wasn't up to me," and that he was warned by Paulson and Bernanke that failing to complete Merrill's takeover would "impose a big risk to the financial system."

Citing a person familiar with the matter, the newspaper said Paulson told the NY AG's office last month that Lewis may have misread some remarks about Treasury's disclosure requirements as instead pertaining to his bank's obligations.

The "person familiar with the matter," is Hank Paulson or one of His Evil Minions^™, and, "he misheard me," is awfully week tea by way of a denial.

As the the Bloomberg article notes:

The allegations in Cuomo’s letter suggest Paulson and other policymakers may have resorted to breaking securities laws in order to protect a fragile financial system, according to Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which has about $13.3 billion under management and doesn’t own Bank of America Corp. stock.

It's actually more than that. Just by instructing Lewis to keep his mouth shut, Bernanke and Paulson engaged in a criminal conspiracy, and possibly, because of the power that they held in their positions, racketeering and abuse of power.

The Wall Street Journal has released selected transcripts, and if Lewis' allegations are true, we have a criminal Chairing the Fed:

Mr. Lewis: I remember, for some reason, we wanted to follow up and see if any progress -- as I recall, we actually, had not agreed to call a MAC after the conversation that we had, and so I tried to get in touch with Hank, and, as I recall, I got a number that was somebody at the Treasury kind of guard-like thing. He had a number for Hank, and Hank was out, I think, on his bike, and he -- this is vague; I won't get the words exactly right -- and he said, "I'm going to be very blunt, we're very supportive of Bank of America and we want to be of help, but" -- I recall him saying "the government," but that may or may not be the case -- "does not feel it's in your best interest for you to call a MAC, and that we feel strongly," -- I can't recall if he said "we would remove the board and management if you called it" or if he said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was one of "That threat, okay, do it. That would be systemic risk."

...

Q: Why do you say it wasn't up to you? Were you instructed not to tell your shareholders what the transaction was going to be?

Mr. Lewis: I was instructed that "We do not want a public disclosure."

Q: Who said that to you?

Mr. Lewis: Paulson.

Seriously, this sounds like gangsters making threats, and I would suggest that a criminal investigation is in order.