Who is Congressman Issa and can he be Impeached?
Today's big news (at least in some corners of the investment world) is US Congressman Issa's claim that Fed Chairman Ben Bernanke has "covered up" the facts regarding the Bank of America acquisition of Merrill Lynch and Mr. Bernanke's supposed threats to BOA CEO Ken Lewis. Mr. Issa is an otherwise, insignificant Republican Congressman from Califronia, who, according to his webpage, has great admiration for President Ronald Reagan. But I promise you, President Reagan would want nothing to do with this idiot, and would quickly distance himself from his fellow state politician.
This whole Bank of America situation should be much ado about nothing. Whatever happened between the Federal Reserve, the US Treasury and the banking industry in the last few months of 2008 was done in desparation to keep the entire planet above water. Had the American banking industry collapsed at that time, there would have been a domino effect that would have collapsed the financial system worldwide. All large banks lend to each other on a global basis, and if a few of the "money center" banks like Citi and BOA had gone bankrupt in the middle of the crisis, all banks would have likely ended in the same situation. This would have magnified the recession several times over into a crisis that would have easily eclipsed the Great Depression.
For those new to this story: Fed Reserve Chairman Ben Bernanke and Hank Paulson, then-Secretary of the US Treasury, first convinced Ken Lewis to acquire Merrill Lynch, which was in very bad shape. Serial acquirer Mr. Lewis reportedly had coveted M-L for many years and was happy to oblige, with government assistance. But once the bean counters at BOA looked under the covers, M-L was in much worse shape than they had suspected. At this point, in early December 2008, Mr. Lewis wanted to pull out of the deal fearing for his reputation and the impact on BOA shareholders. Had Lewis done so at that point in time, the very fragile banking system may have collapsed, as it started to in September when the Treasury and bank regulators allowed Lehman to go bankrupt following the bankruptcies earlier of Bear Stearns, Fannie Mae, Freddie Mac and AIG.
And here is where the controversy begins. Mr. Lewis needed some amount of encouragement to keep his end of the bargain. Bernanke and Paulson helped him understand the danger to the entire global economic system if he abandoned the deal at that point in time. Mr. Lewis was not happy about the situation, but agreed to go through with the merger, because he came to understand the ramifications of pulling out, according to his own Congressional testimony a few weeks ago.
This should be "end of story". We all know how dangerous the banking system was last Fall. The Fed and Treasury did what it took to stabilize the system at great risk to personal reputation, and reportedly 24/7 effort over more than a couple months. If some subtle arm twisting took place to help Mr. Lewis understand the significance of his decision, then so be it. What a small price to pay for saving the global economy. We aren't talking water-boarding or horse heads here.
Then, along comes Rep. Issa and his over-reaching desire for political gain (apparently, that is the only motive that makes any sense). He is the Republican minority leader on the House Oversight Committee. Today, he decided to make hay of the misplaced concerns in Congress that Bernanke and Paulson overstepped their authority and coerced Mr. Lewis into making the acquisition, something Mr. Lewis has already denied under oath in his Congressional testimony.
Mr. Issa apparently thinks his personal political gain is more important than the stability of the world's economy and the millions of unemployed. His accusations of "cover up" intentionally bring up comparsions to Watergate. Why else would he use such a volatile term? He obviously is trying hard to embarrass the President who has backed Bernanke. Some of the Republican "hard right" are not happy that Bernanke has saved the banking system preferring instead "to let the free market fix the problem". Yeh, right.
So, I ask the question? Can a Congressman be impeached? And if so, how can I help impeach Mr. Issa? He is a disgrace to our country and to the Republican party and should be ashamed of himself for breaching protocol and making on his own as only the minority leader of this committee, his accusations regarding the Fed Chairman.
Related posts:
- Whose Fault Was the Crisis? Fed or Free Market?
- Dealing with the Success of Reflation
- On the Persistence of Economic Growth
I am not sure I agree. ML is an investment bank & brokerage. It’s not an FDIC insured bank. Letting it fail wouldn’t have had any major implications other than lowering investor confidence which is still too high in my opinion. While it did let Bear Stearns and Lehman fail, it seems rather strange that the Fed would pick and choose whom to bail out. Either you bail out everyone, or no one.
The Fed propped up the regular banks which i guess was the right thing to do, although I would have preferred a massive collapse in the banking system if only for my own morbid pleasure
To mis-quote George Costanza’s father on Seinfeld, “Schadenfreude Now!!!!”
Well, there is always the entertainment value of watching big, greedy business leaders crash and burn. It has become a national pastime.
But fun aside, as you point out Nirav, Bear Stearns was saved by merging into JP Morgan, and Lehman was not. As Bernanke testified yesterday in Congress, it was not for lack of trying. The nation’s financial leadership was terrified what would happen that Monday when the markets opened and Lehman was busted, without any arranged marriage or even a suitor for its assets. As he testified, their worst fears were borne out in the following 2-3 weeks when the world teetered on the edge of the abyss. Just go back and look how frozen interbank lending was, by looking at the TED Spread (which thankfully, is just about back to normal at less than 50 basis points).
So, I don’t think it was any surprise when they consider ML too big to fail. It was bigger than Lehman and the financial crisis was deeper in December. I give the financial leadership (Bernanke and Paulson), 100% credit for everything they have done.