Most of you know my views on what has been happening to our financial system. Ken Lewis' testimony today on being pressured by Bernanke and Paulson further confirms that the government is running the best damn prop show you will ever see in your lifetime. Not only are we printing money like there is no tomorrow in order to prop up our sad banks who destroyed themselves on bad bets, we are propping up the notion that our financial markets are sound and fair.
For those of you that don't know the deal with Bank of America and Merrill Lynch, essentially, the government told Ken Lewis that Bank of America had to buy Merrill at an inflated price otherwise he would suffer the consequences. The complete truth of the story has not come out yet, but Ken Lewis is a very bright guy and it is obvious that he was told to do the deal and to conceal that fact from shareholders. As you can image, government tampering with a financial transaction in this manner is a very big problem. It's also a big problem from a public shareholder perspective. It's obvious that shareholders could sue Bank of America because essentially the ML transaction was made on their dime. However, can they also sue the government? Can they sue the SEC? Or can the SEC sue the government? What happens when the managers of the very system that stands for fairness become corrupt? What happens when the bosses who the SEC report to end up being the ones who manipulated the market?
In this case, probably nothing. But mark my words, we have descended down a slippery slope and perhaps there is no return.
I can't help but wonder that if the guys at Enron, Tyco, Madoff funds, Stanford Financial and countless others can go to jail for lying, cheating, and running a Ponzi scheme, certainly Bernanke and Paulson and everybody privy to this transaction can go to jail for securities fraud and market manipulation?
The truth is unlikely to ever come to light. Ken Lewis himself is in a unique situation. He can't tell the complete truth otherwise he incriminates himself by admitting that he did a deal that he knew was bad for shareholders. He also can't strongly defend the deal because then he just looks like an idiot because he overpaid when the whole world knew in a few days Merrill's stock price would collapse. So he is stuck avoiding the tough questions and being elusive. I guess essentially he was at the wrong place at the wrong time.
This entire episode confirms that at the end of the day nobody is "Holier Than Thou". Bernanke can sit up there and wax eloquent about the stability of the financial markets. Yet in an extraordinary time of stress of the financial markets he manipulates a public transaction.
In extreme times of stress people do shady things and everyone has skeletons in their closet. Perhaps our only salvation in this country is that we are less shady than everyone else.
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