A Save Face Testimony?

As lawmakers continue to question all involved in the 2008 deal that brought securities firm Merrill Lynch under the command of Bank of America Corp., questions arise as to the legality of the Federal Reserve’s role in the negotiations.

In a testimony on Capitol Hill, Federal Reserve Chairman  Ben Bernanke maintained that the Federal Reserve and its officials acted with the “highest integrity” during tense negotiations with BofA over, at the time, what was the bank’s impending acquisition of Merrill according to the Wall Street Journal. Mr. Bernanke’s testimony comes only two weeks after BofA CEO Kenneth Lewis gave his own hearing before the House Committee on Oversight and Government Reform.

But the stories of Messrs. Bernanke and Lewis don’t quite add up. On June 11 Mr. Lewis publicly acknowledged to being pressured by federal officials as soon as BofA began to stutter in the negotiation process once Merrill released its fourth quarter report which registered some 12 billion in losses. Today, Mr. Bernanke denied such allegations, assuring lawmakers that he “did not tell Bank of America’s management that the Federal Reserve would take action against the board or management.”

Questions are also being raised as to whether or not the Fed “advised BofA to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses, or any other related matter.” But in his own testimony, Lewis admitted that there were discussions on the matter in January. The losses were discovered in December, long after the Fed was heavily involved in the negotiations. It could be that the Fed never mentioned one word about the disclosures, but it sure is fishy, huh?

Presumably both men have a lot riding on these statements. For Mr. Lewis it is a matter of keeping his job as top dog at one of the top investment banks in the world. For Mr. Bernanke the price is much greater. Not only is Mr. Bernanke up for reappointment early next year, but the Fed’s credibility is on the line at a time when the Obama administration is pushing to overhaul the financial regulations system, granting unprecedented powers to Mr. Bernanke and his colleagues.

So, who’s telling the truth with regards to this shotgun wedding? Or, as Committee Chairman Edolphus Towns so pointedly put it, “who was holding the shotgun?” The American taxpayer has a right to know.