Lewis and Bernanke Both Played on Fears and Threats in BofA/Merrill Deal

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“In short, the Treasury Department had provided a $20 billion dowry for a shotgun wedding. But the question may be, ‘Who was holding the shotgun?’” – House Oversight and Reform Committee Chairman Edolphus Towns

On June 11 the House Oversight and Reform Committee questioned Bank of America (BAC) CEO Ken Lewis to ascertain whether he was pressured by Federal Reserve Chairman Bernanke and former Treasury Secretary Paulson to consummate the bank’s marriage with Merrill Lynch, or whether Lewis’ threat to back out of the deal was actually a strategy to get government assistance to complete the merger.

Chairman Towns said at the conclusion of the hearing the Committee needs to hear all sides of the story to put the pieces together and will call on Bernanke and Paulson to testify at an upcoming hearing. It will be interesting to see if they show up voluntarily or whether the Committee will have to issue subpoenas, which was how the Committee got the Fed to turn over the documents it requested for this hearing.

The new twist that Ken Lewis might have been manipulating Bernanke and Paulson was primarily pursued by Rep. Dennis Kucinich who remarked it was “quite possible that BofA put a gun to the head of the Fed by threatening to invoke a MAC” (material adverse change) clause in the merger agreement due to Merrill’s escalating losses.

A Federal Reserve email from Richmond FRB president Jeffrey Lacker (page 9) states that Bernanke thought the MAC threat “is irrelevant because its not credible.” In another email, (page 1) Fed staffers questioned BofA’s “due diligence process”, believing Lewis’ claim to be “somewhat suspect” since even though Merrill’s fourth quarter losses began to accelerate in mid November, those losses had been “observably underway over the entire quarter.”

Lewis told the Committee it was the sudden acceleration of Merrill’s losses that prompted him to contact Bernanke to tell him he was “strongly considering” invoking the MAC. The chart for the December 17, 2008 6:00 PM meeting with Bernanke and Paulson shows both sides would quickly reach agreement that the merger needed to happen since the planetary rulers representing Lewis (the Moon) and the government (Saturn) would exactly conjoin at 5:58 PM the following day.

The Moon conjoining Saturn in Mercury-ruled Virgo in the area of the chart representing contracts shows that both sides had anxieties about how they would steer this through. The Moon harmonizing with Mercury in Saturn-Ruled Capricorn indicates that Lewis was relying on the government to help him with his predicament. It’s a predicament Lewis would not have faced if during the panic of that Full Moon weekend when Lehman collapsed, he could have been patient and waited for Merrill to unravel and come to him at a much lower price. That’s how Barclays (BCS) ended up with the choicest morsels of the Lehman carcass.

Both sides have claimed they acted for the good of the country. The sign Cancer on the chart’s Ascendant* indicates the accuracy of their assertion since it exactly conjoins the USA’s Sun (nation’s identity). The Ascendant conjoining the USA Sun in Cancer also appropriately describes Bank of America (the biggest U.S. bank by assets), symbolized by its American flag logo.

The Sun conjoining Pluto represents leaders in very powerful positions. Pluto represents secrets, hidden agendas, and power plays. Scorpio ruling the area of the chart representing shareholders reflects that BofA shareholders would be kept in the dark about what was going on. Lewis said at the hearing that it is the job of BofA’s securities lawyers to tell him when he needs to publicly disclose information to shareholders.

Saturn represents government. It also represents the pressure the majority of Committee members felt the government was exerting on BofA to complete the Merrill acquisition. In a December 20 email (page 9), Jeffrey Lacker details a conversation he had with Bernanke who told him he “intends to make it clear that if they play that card (invoke the MAC) and then need assistance, management is gone.” Lacker writes that he forgot to tell Bernanke that “Ken Lewis is near retirement.” An email from Fed Governor Kevin Warsh (page 16) to Bernanke states that Warsh “reminded” BofA CFO Joe Price “that they are the ones who would look equally bad in eyes of market and regulators if they chose to terminate transaction.” Lewis kept reiterating that he didn’t view these comments as a threat but rather took the Fed’s serious tone to mean the government was very concerned about injecting additional systemic risk into a fragile economic environment.

Rep. Darrell Issa asked Lewis if Bernanke and Paulson pressured him to go through with the deal using tactics that a car salesman would employ. Rep. Jeff Flake questioned whether Lewis might be suffering from Stockholm syndrome as Lewis, ever mindful that BofA must keep its financial regulators happy, attempted to politely sidestep the issue. Lewis said that Bernanke “never said we should not disclose anything that was disclosable but did express interest in not calling a MAC several times.”

By December 21 the Fed had put together a “Talking Points” memo (page 11) outlining why the deal had to go through, and a Fed email the following day (page 4) confirming Ken Lewis agreed to “drop the MAC and work with the government to develop whatever support package might be needed for earnings announcement dates around January 20.”

As Rep. Kucinich remarked in his opening statement: “Due to the secretive and unaccountable conduct of the Fed throughout its interventions addressing the current financial crisis, many questions about the Bank of America-Merrill Lynch deal and bailout have, until today, remained unanswered.”

Kucinich aptly describes the Fed’s Sun in Capricorn opposing Pluto in Cancer. The June 21 Summer Solstice and the Cancer New Moon the following day conjoin the Fed’s natal Pluto and oppose the Fed’s Capricorn Sun. And during this time the Sun in Cancer will oppose Pluto in Capricorn, reinforcing this planetary pattern in the Fed’s chart.

The Fed will be forced to be far more transparent about its financial arrangements. Pluto in Capricorn conjoining the Fed’s Sun will transform the Fed’s identity and purpose. The Sun opposite Pluto reflects disagreements between Chairman Bernanke (Sun), the Fed governors and regional bank presidents, as well as members of Congress is likely to become more intense over time. The very foundation of the nation’s central bank must be rebuilt as the financial system has been severely weakened by the Fed taking the nation from one bubble to another and then deploying ad hoc solutions to handle the financial fallout.

*The Ascendant represents the zodiac sign rising on the eastern horizon at the time of birth.

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