Wednesday, August 12, 2009

The Fed Manipulates Stocks

Must read piece today from The Atlantic, "The Final Days of Merrill Lynch."

Just when you thought that the insane saga of BankAmerica's acquisition of Merrill Lynch was fading back into the shadows, this piece comes out and reinforces the insanity of the situation. Ken Lewis's behavior almost has to be illegal in one way or another. The fact that he failed to disclose the Merrill losses to his shareholders is inexcusable, even if it was under duress from the Fed and Treasury, and for the good of the system.

I don't know if the following revelation is news - it's certainly news to me:

"Although this new deal with Treasury and the Fed could not be completed by the time the merger was to close on January 1, Lewis told his board he had received an oral commitment that the capital infusion and toxic-waste removal would be in place by January 20, the day Bank of America was to release its 2008 earnings report. Lewis said Bernanke told him, “We view you as strong and having acted appropriately in difficult circumstances … We’ll make sure you continue that way … We want to do something that when the public hears about it [the new government financing], your stock goes up.”

I mean - WOW. Am I the only one who gets fired up when I read that? Bernanke is quoted here saying that he will offer Ken Lewis a quid-pro-quo to help his stock price. Wow. The Fed, Treasury and the Government should not be in the business of controlling stock prices. That's one of the biggest mistakes they've made in the bailout proceedings so far - starting with the desire to hide which firms were in the most trouble by forcing all the big boys to take TARP dollars, and continuing with the fact that they STILL have not forced bank bondholders to subsidize the losses (by converting debt to equity) that the taxpayer is instead being asked to fund.


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