"The men who nearly ruined Bank of America have some explaining to do"

So says the Wall Street Journal, in a scathing editorial about bailout skullduggery:

The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It's a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse.

In the name of containing "systemic risk," our regulators spread it. In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders. And in the name of restoring financial confidence, they have so mistreated Bank of America that bank executives everywhere have concluded that neither Treasury nor the Federal Reserve can be trusted. [...]

Evaluating the policy of Messrs. Bernanke and Paulson on their own terms, this transaction fundamentally increased systemic risk. In order to save a Wall Street brokerage, the feds spread the risk to one of the country's largest deposit-taking banks. If they were convinced that Merrill [Lynch] had to be saved, then they should have made the public case for it. And the first obligation of due diligence is to make sure that their Merrill "rescuer" of choice -- BofA -- had the capacity to bear the losses. Instead they transplanted the Merrill risk to BofA shareholders, the bank's depositors and the taxpayers who ensure those deposits. And then they had to bail out BofA too.

The political class has spent the last few months blaming bankers for everything that has gone wrong in the financial system, and no doubt many banks have earned public scorn. But Washington has been complicit every step of the way, from the Fed's easy money to the nurturing of Fannie Mae and Freddie Mac, and since last autumn with regulatory and Congressional panic that is making financial repair that much harder. The men who nearly ruined Bank of America have some explaining to do.

Whole thing here.

Glad to see the Journal inveighing against the "regulatory and Congressional panic" that has consumed policy-making "since last autumn," though it would have been nice if the paper would have saung that same tune, er, last autumn. Instead, the nation's leading financial newspaper supported the bailout with a hundred-dollar sneer toward those who did not:

Safe in their think-tanks, some of our friends have claimed that talk of a financial crash is merely a political invention. Perhaps we'll now test their theory. A financial panic isn't an academic seminar, and a flight from all risk isn't something any free-marketeer should want. A recession now seems certain, as falling commodity prices are telling us, but the point is to prevent systemic financial collapse. Maybe the Members who voted "no" figure at least they'd still have jobs.

Reason on bailouts here.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Randall||

    "And in the name of restoring financial confidence, they have so mistreated Bank of America that bank executives everywhere have concluded that neither Treasury nor the Federal Reserve can be trusted. [...]"

    Change we can believe in!

  • ||

    As horrifically bad as the current administration is proving to be on economic (and most other) issues, I'll never forgive the also awful Bush administration for starting the panic. Without making the economic downturn into a "crisis", Congress and the Obama administration would've had a far more difficult time in trying to use the crisis to impose their brand of neo-socialism on the rest of us.

    And thanks WSJ and other media outlets for being consistent on this from the beginning--you suck, too.

  • T||

    Maybe those formative years I spent in the belly of the beast scarred me for life, but the one abiding lesson I left the Army with was simple: The government can never be trusted. Why did these bankers think they could trust their regulators?

  • Bored Lexicographer||

    it would have been nice if the paper would have sang that same tune

    "Would have sang"? I just checked two dictionaries (one of which was the Shorter Oxford), and neither one lists "sang" as a part participle of "sing."

  • Xeones||

    "Part participle," Bored Lexicographer? joe'z Law strikes again!

    Anyway, it's encouraging to see the Journal pull its head out of its ass on the bailout mess.

  • Bored Lexicographer||

    past participle

    A pox upon me!

  • Fluffy||

    Here's a problem that goes beyond the personal failings of Fed and Treasury officials in this particular crisis:

    Our system tries to insure transparency, but it's built on a fiat currency and banking system that also require "confidence".

    Those two values aren't always going to be in alignment.

  • IceTrey||

    "and the taxpayers who ensure those deposits."

    As I understand it the FDIC is capitalized by premiums paid to it by the banks themselves. Am I wrong here?

  • ||

    Part and participle.

  • alan||

    Even my local fishwrap, the Greensboro new & Record(in fairness, the editor-in-chief whom I've heard speak on one occassion comes across as a smart, intellectually balanced fellow) over the weekend had a scathing editorial blaming Paulson and Bernanke for the hit our North Carolina economy has taken because of their senseless actions.

  • ||

    Change we can believe in!

    I don't think we can blame Obama for this particular incident. This was on Bush's watch.

  • T||

    And where's the shareholder lawsuit against all these bastards, anyway? Shouldn't that have been filed already?

  • alan||

    News & Record, bleh, it got chopped off when I reached for the fancy '&' symbol and hit the CTRL at the same time. Serves me right for gettin' all fancy and everything.

  • ||

    The men who nearly ruined Bank of America have some explaining to do.



    Good luck on that. Good luck on getting the media to stop fellating Obama long enough to stick Bernanke's and Paulsen's feet in the fire. Good luck on getting the general public to look past the lurid headlines. Good luck on getting anyone outside a narrow libertarian/conservative fringe to give a shit.

    And you, WSJ, are partly to blame, and have some 'splaining to do as well.

  • Bluto||

    "Part and participle."

    Sense and sensibility.

    This is fun!

    BTW Anne Hathaway was one hot Jane Austin.

  • Thomas||

    the Greensboro new & Record

    Whoa, Alan. Another Greensboro resident here. Small world.

  • Mad Max||

    Yo, bless the Wall Street Journal's heart!

  • alan||

    small world, that ain't you is it, bro?

  • wayne||

    "I don't think we can blame Obama for this particular incident. This was on Bush's watch."

    CT, I would assign at least 90% (and rising) of this chaos to Obama.

  • spambot||

    "I don't think we can blame Obama for this particular incident. This was on Bush's watch."

    I totally agree. I agreed last fall. What I and others take issue with is Obama and his group not only making the same mistakes but throwing them into hyperdrive.

  • alan||

    By bro, I mean first name Thomas, middle initial J. and Spanish surname?

  • ||

    spambot, I agree. Obama has made a bad situation worse.

    wayne, I don't know precise percentages, but I think that's pretty high. I'd give Obama no more than 50% at this point. Ask me again in two years and I'll probably be closer to your figure...

  • Janet Reno||

    The political class has spent the last few months blaming bankers for everything


    BofA's customers must be prosecuted to the fullest extent of the law for this.

  • JP||

    BTW Anne Hathaway was one hot Jane Austin.

    What's the deal with Anne Hathaway, anyway? I don't get the attraction. Is it a generational thing?

  • ||

    What's the deal with Anne Hathaway, anyway?

    I think she's attractive until those big chompers make an appearance.

  • hmm||

    "My administration," the president added, "is the only thing between you and the pitchforks."

    He may not have started it, but he sure as hell is running with the torch. Create public outrage, then swoop in to save the day.

  • Bluto||

    "What's the deal with Anne Hathaway, anyway? I don't get the attraction. Is it a generational thing?"

    She got big eyes. They go with her nose.

  • Atanarjuat||

    Anne Hathaway is a female version of the Joker, but with nicer tits (Havoc).

  • ||

    Raaaawwwrrrrrr!!!

    Tow, Lion, tow!

    What next? An editorial supporting the Fourth Amendment?

    Better late than never, but jeepers, guys....

  • Bluto||

    Anne Hathaway. What's not to like?

    http://www.celeb-ratings.com/wp-content/uploads/2009/01/anne-hathaway1.jpg

  • Mari Dupont||

    The WSJ's editorial page is renowned for its shameless inconsistency; it's (almost) amusing how they pound away with some argument this week, completely ignoring the fact they browbeat us with the exact opposite argument the previous week.
    Anne Hathaway's appeal? Probably the lips.

  • alan||

    Is there any guy here who would turn Anne Hathaway down? Just sayin'. Those choppers may be worthy of a Family Guy upper North Eastern crust parody, but damn, in the overall symetry, she looks mighty fine.

  • ||

    What's the deal with Anne Hathaway, anyway? I don't get the attraction. Is it a generational thing?

    Dunno. What generation are you?

    She works for me.

  • Deck Hand:||

    Le lightsabeur terrible. [does lightsaber sound effects, then sobs.]

  • ||

    She's not on my Friends Five but if I saw her walking down the street, I'd get out the pen and make a quick edit while the wife wasn't looking.

  • JP||

    Dunno. What generation are you?

    Old. The old generation. I was 25 in the '80s.

  • ||

    Anne Hathaway? Wasn't she married to that Shakespeare guy?

  • High Every Body||

    Old. The old generation. I was 25 in the '80s.

    Did you go to high school with George Burns?

  • Craig||

    ...Washington has been complicit every step of the way, from the Fed's easy money to the nurturing of Fannie Mae and Freddie Mac...

    Maybe Ron Paul's ideas are starting to infiltrate the mainstream media after all...

  • Gimme Back My Dog||

    I was 25 in the '80s and I would--as the current 25 year olds might say--destroy Anne Hathaway

  • JP||

    Don't you think her eyes and choppers are too big for the rest of her?

    I mean, not that she's ugly, but I don't see her as especially hot either.

  • ||

    "BTW Anne Hathaway was one hot Jane Austin."

    Pride and Prejudice and Zombies: The Classic Regency Romance - Now with Ultraviolent Zombie Mayhem! by Jane Austen

    http://www.amazon.com/exec/obidos/ASIN/1594743347/reasonmagazineA/

  • Xeones||

    Don't you think her eyes and choppers are too big for the rest of her?

    They're within the acceptable parameters. I'd hit it like a Vatican con man, if not for the fact that my wife might not approve.

  • alan||

    I can see the complaints that some peple have for Anne, but to me it usually comes down to voice:

    Quickly, imagine Drew Barrymoore speaking, and now imagine Anne Hathaway.

    See the difference, you went from a grating 'errrr', to a smooth, 'ahhhh'. Anne is pleasant like that.

  • Pedro||

    The WSJ is being ideological and talking out its butt.

    The timeline I remember is 1) Bear Stearns collapses in March 2008, government brokered sail to JPMorgan. Government given a hard time about this.

    2) Paulson et al. say fine, allow the teetering Lehmann Brothers to collapse, which does cause a panice. (for the slow, that caused the panic, not the government "talking the economy down."

    3) Paulson et al. freak out about the panic, force BoA to buy the teetering Meryl Lynch to avoid more panic.

    If Ken Lewis and the bankers are ungrateful for the taxpayers bailing them out, then we should either a) let them all fail or b) nationalize them all and sell em off, firing Ken Lewis in the mean time. Going with b) will save the taxpayers money, but either way is fine. Then the WSJ can write a BS editorial about it.

  • ||

    She's not on my Friends Five

    Friends gets credit for that? Ugh. The Freebie List has been around since long before Ross and Rachel.

    Reminds me of the people who swear "cougar" was coined by How I Met Your Mother.

  • Fluffy||

    3) Paulson et al. freak out about the panic, force BoA to buy the teetering Meryl Lynch to avoid more panic.

    Um...right. Your #3 bullet point basically acknowledges that the Journal is absolutely right.

    If you concede that Paulson forced a healthy company to buy a dying one, and forced the management of the healthy company to lie to its shareholders about the entire process, then you have conceded the entirety of the Journal's argument.

    And you've also conceded that every Fed official and Treasury official involved in these events belongs in jail. Either that, or every last person ever convicted of an SEC related crime has to have their records expunged and any fines and legal fees returned. [The other option, of course, is that you think it's OK for multiple laws to be broken, if Paulson thinks he has "a good reason".]

  • ||

    If I was a scumbag securities strike suit lawyer, I'd be filing my class action complaint against BofA right now. You have a bulletproof record that they materially misled shareholders, so you're straight into the damages phase.

  • Ayn Rand\'s Angry Ghost||

    "In the name of containing 'systemic risk,' our regulators spread it. In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders."

    If you had actually read Atlas Shrugged, rather than just the CliffNotes, you could have seen this coming.

  • Tony-bot||

    Stop it, stop it, stop it! ALL the major banks were begging for the bailout! If it weren't for the bailout, we would all have had to resort to cannibalism! If we don't trust the chosen one unconditionally, we'll still end up resorting to cannibalism!

    I hat my life!

  • Tony-bot||

    By the way, Barney Frank was the only one with the foresight to know Fannie Mae and Freddie Mac should be more closely regulated. Only evul Reublicanz are saying he didn't.

    Libertardians are stoopid.

  • engineer||

    "Change we can believe in!

    I don't think we can blame Obama for this particular incident. This was on Bush's watch."

    There's a time I woul have made a strong distinction between the two. No more. Pretty much everything that sucked about Bush's presidency will continue, and those things that didn't suck will start to suck.

  • engineer||

    Correction: "would have made".

  • ||

    Obama's even more bought-and-paid-for by the financial industry than Bush was, amazingly enough.

  • Tony-bot||

    Stop it! I mean it, if you don't stop complaining about the government I'll Go Boyle and leave! Yeah! You all need me here to break up the echo chamber!
    I HATE MY LIFE!

  • ||

    The WSJ is being ideological and talking out its butt.

    The timeline I remember is 1) Bear Stearns collapses in March 2008, government brokered sail to JPMorgan. Government given a hard time about this.

    2) Paulson et al. say fine, allow the teetering Lehmann Brothers to collapse, which does cause a panice. (for the slow, that caused the panic, not the government "talking the economy down."

    3) Paulson et al. freak out about the panic, force BoA to buy the teetering Meryl Lynch to avoid more panic.

    If Ken Lewis and the bankers are ungrateful for the taxpayers bailing them out, then we should either a) let them all fail or b) nationalize them all and sell em off, firing Ken Lewis in the mean time. Going with b) will save the taxpayers money, but either way is fine. Then the WSJ can write a BS editorial about it.


    Let's get one thing straight. Wall Street and Pennsylvania Ave. were freaking out about the collapse of Bear Stearns and Lehman. Meanwhile, work continued as normal around the rest of the country. Its only when the government started claiming a credit freeze and making all the banks look insolvent that the real panic set in. Congrats Paulson and Bernanke, you precipitated the greatest financial crisis since 1929. Maybe if the government had taken a different tack, the downturn and recovery could have been sharp enough to avoid the long drawn out decline we find ourselves in.

  • ||

    [WSJ editor]: "I'd like to return this memory-hole. It is defective. I said this, but no one should remember."

  • Pedro||

    Its only when the government started claiming a credit freeze and making all the banks look insolvent that the real panic set in.

    That's just not true. The credit market froze up on it's own.

    Congrats Paulson and Bernanke, you precipitated the greatest financial crisis since 1929. Maybe if the government had taken a different tack, the downturn and recovery could have been sharp enough to avoid the long drawn out decline we find ourselves in.

    Congrats, you're another ideological moron who only sees the facts he wants to see.

    If it wasn't for the major governments of the world swift action, we'd be in a world wide depression right now.

  • ||

    That's just not true. The credit market froze up on it's own.

    I applied for a loan at the height of the crisis and my credit union said "no problem, what terms would you like?". No one I know ever had their paychecks bounce because their company couldn't get payroll loans. Credit card rates started increasing, but I only rarely heard of someone having their card canceled and only then it was after the bailout. So just cause you disagree doesn't mean you have a clue what happened.

    Congrats, you're another ideological moron who only sees the facts he wants to see.

    If it wasn't for the major governments of the world swift action, we'd be in a world wide depression right now.


    1. That doesn't mean anything other than you see other "facts"

    2. Ah yes, the "if we hadn't done X, it would be worse argument". Has that ever won a debate?

  • engineer||

    "2. Ah yes, the "if we hadn't done X, it would be worse argument". Has that ever won a debate?"

    Unfortunately yes, because most people are stupid.

  • ||

    It is all the huge banks ripping off americans with 29% interest rates on credit cards. They are theives. I vote everyone on the planet withdraw all money from banks and shut them down. Let the know what it is like to do without.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement