07. it looked like an additional 12 billion was discovered by mr. lewis. ..

we discussed his common equity issue. we agreed having a significant amount of top capital in the form of of common equity was not an ideal solution given the ownership implications but we agreed to think about possible solutions, parentheses, government backstop of capital raised, government, and with limited control lights. now, it sounds to me like kenneth lewis is concerned about his job, and for the american taxpayer to get voting rights in return for the t.a.r.p. money, mr. lewis would be gone i believe. is that -- is that the concern you believe, to become mr. lewis expressed regarding the t.a.r.p. being presented with rights, voting rights for the american taxpayer in that deal?

>> i don't know exactly but his concern was. it may have been just concern about government intervention in his management and operations of the company. >> well, this discussion is what it is. it indicates that mr. lewis is concerned about the tax payer having some input, some control. and it sounds like -- it says we agree to think about possible solutions to that, backstop capital raise or government tax payer involvement with limited control rights. and i am just wondering whether in this deal to provide this support whether the taxpayer is getting the full leverage they should have gotten given the amount of assistance we've put into this company, into this deal. >> well, the company is subject to the restrictions of the t.a.r.p. and treasury provisions

on executive compensation and the like and also subject as we discussed to the supervisory oversight of the federal reserve and the occ and we've taken action for example to ask them to add independent directors to the board and make other appropriate changes to the company. >> could we have not gotten greater protection for the american tax payer than what we did in terms of considering we are saving this company with the american tax payers assistance, and we don't gain the control that i think is commensurate with that support. >> well, i'm not quite sure. i would have to look at the e-mail again. at that time the t.a.r.p. money was provided in form of preferred stock, which is on the one hand mont voting but on the other hand is senior to common equity and therefore is safer. >> i & that, but it's the lack

of -- it seems like mr. lewis was most concerned with lack of input or control on the part of the tax payer and i think that would have helped, you know, in this deal if we had greater control on behalf of the american taxpayer. -- chairman thank you. i yield back. >> i now yield five minutes to the gentleman of massachusetts mr. tierney. >> thank you mr. chairman. mr. bernanke, another we the public money seemed to flow to these financial institutions. back in march of 2009, aig disclosed the name of the counterparties. the people that had credit stifel swap agreements and bank of america was among them as others. it appears from the records that there were losses in the so-called super senior multi sector credit default swaps portfolio aig had and that it

created a liquidity problem and had obligations there were problems in the portfolio to push more cash or collateral security for the obligation. the federal reserve board of new york had $85 billion loan to a ing. the testimony today is that money was used to buy all the contracts and cancel them, that's how they took care of that obligation. what was of concern to me and others is the counterparties appeared to have received 100% of that even though testimony from people at aig before the committee said they thought there were a lot of contentious reasons to think they did not all 100% if they would anything at all on those particular obligations that there had been serious negotiations about whether they should pay anything to the counter parties and if they should pay something, chest and 100% they should pay. we pressed mr. lardy at aig for makarov on just how the negotiations went, why did they pay 100%, his comment was he was

the wrong person to talk to and in fact the fed had all of those documents and paperwork because they had struck the deal. so, my question to you is why was 100% paid on these obligations including what was the rationale, why weren't the interest of the public money interests protected so that there was a bitter negotiation than just forking over 100%. >> i don't see what basis does than 100% could be paid. there were obligations, failure to pay would allow the creditors to force bankruptcy which is exactly what we were trying to avoid. this is precisely why we need a regime that would allow the reza olver to hair cut creditors and abrogate existing contracts but under the current lull you can't avoid bankruptcy without paying off existing contracts. >> the people that were running aig said they thought they were certainly issues involved and they didn't owe the money under the contract that the default may not have occurred or if it

did it didn't obligate them to pay full amount. these people that have made the contracts will strongly negotiating on the time and apparently they felt they could have struck deals that wouldn't have obligated 100%, these are contractual issues so they could have been done and once they turned the matter over to the fed their inference is rolled over and gave 100% to the bank of america, citibank and other people and it looks to others from the outside trying to make those people healthy unquestionably by taking public money and putting folding on the deal so my question is will you produce to this committee copies of the credit derivative contracts and the aig corporation with those third party counterparties including the details of the terms and conditions of the contracts all documents and correspondence regarding the special purpose vehicle that was created by the fed to do these transactions

including the negotiations that went on for that and then correspondence concerning the trusts we can get a look at the documents and make an assessment on that. >> i think we've just in the recent release released a whole set of documents related to those issues but if you have the specific -- we created a monthly publication that provides information about the maiden lane for example. if you would send a letter with requests we will see what's available. >> we certainly will. we want everything that's available and the question to you is when we make that request will you provide it? >> if i am able to do so, i will. >> thank you. i yelled back. >> and i yield to the gentleman from illinois, mr. davis. >> thank you very much, mr. chairman and chairman bernanke, and thank you for being here and for your long

patience and endurance. let me just ask you how involved is the fed in the day-to-day management of bank of america? for example, does the fed have veto power on major decision making at bank of america and has any consideration been given to replace an upper level management? >> the fed isn't involved in the day-to-day management. that's the responsibility of the board and management. we are involved in evaluating the capitol, the assets, liquidity and management of the corporation. we have had concerns about aspects of the management and we have asked the board in particular to add independent directors which they are in the process of doing and will continue to be careful and monitor the management situation but we do not take daily decisions. that is not our job. >> mr. chairman, let me ask you when the government invested

heavily in aig, fannie mae and freddie mac management was actively replaced. why was the fate of mr. lewis so different in this instance? >> well i think in this case the merger was undertaken in good faith. it was at that time looked like a reasonable combination. a lot of firms suffered severe losses in the fourth quarter. it was one of the worst quarters i think in history in terms of financial losses. ever judgment at the time was that he could continue to lead the company and we have not addressed that. but obviously we will continue to evaluate management in the board as we go forward and make sure we are comfortable with leadership of bank of america. >> in an e-mail from mr. walsh to yourself on december 30, he

writes and i quote, ken lewis is going to call to reaffirm the understanding that you have. ken may also raise his favorite issue, that is the rich man supervisory team on the same page as the board. richmond staff was on our call today but prior to the call it sounds like they may have threatened a little bit more than ideal on the need to get rid of dividend and fast -- i told price will be making joint determinations. my question is to your knowledge do you think that mr. lewis is interaction with the supervisory team at the richmond fed threatened or coerced in any way mr. lewis? >> welcome the federal reserve in general throughout last year

was concerned about bank of america's capital particularly its tangible common equity. and the federal reserve bank of richmond which was the supervisor of think of america was interested in having bank of america increase their capital perhaps by reducing their dividend through other measures. at various points there were some confusions i think about what the position of the fed was because there were miscommunications between the richmond fed and board of governors and washington and mr. lewis far from being intimidated was free to call and ask me for resolution of these issues and we made sure that everybody that was on the same page and got that cleared up. >> so it would be a normal interaction -- >> yes, and normal process. >> i'm having some concerns with richmond and that kind of thing.

mr. chairman, let me ask, you have gone on the record as supporting increased transparency in connection with federal reserve board operations yet the bailout of bank of america was done behind closed doors without investor public knowledge or input. could the american people really understand in any way what happened? i mean, what really happened? was mr. lewis pleaded to going forward with his own bad deal? or did mr. lewis recklessly agreed to pay too much for merrill lynch so that the federal government felt backed into a corner when faced with the prospect of louis backing out of the merrill deal and of course we experienced the inevitable bankruptcy of merrill

lynch. could you respond to this? >> yes, sir. today i think has been productive in terms of transparency and more information about what happened. clearly there was a very difficult period and many complex problems of the that were being addressed but as i indicated i believe that we solve this problem without an any way taking steps that were either beyond oh-la-la or on ethical. and i believe we did the right thing in order to stabilize both companies or the financial system. >> thank you very much and thank you, mr. chairman. >> the gentleman's time is expired. congresswoman norton for five minutes. >> thank you, mr. chairman and we do appreciate the transparency your try e and to bring to this transaction. i am not inclined to

second-guess the judgment of people in the midst trying to deal with the problem rising, problem after problem in the midst of a unusual crisis that i am interested in bank of america's options under the circumstances. bank of america shareholders. we did have a series of rather unusual late developing facts or factors to come to light in the process of the negotiations for this agreement. i'm wondering if it would not be true that -- let me lay the predicate for this by saying that apparently the legal division apparently had an

opinion that no delaware court had been found i am quoting him now that it found a material adverse affect to have occurred in the context of a merger agreement. well, one would have to know the facts surrounding those circumstances and to suppose that they could not possibly have been at the same level of intensity because we are in the middle of a national economic crisis. that aside i can understand from that that without knowing what the case law was that there was that conclusion. but couldn't a bank of america have negotiated a reduction in

price with merrill had invoked the mac calls, what you think that would be the logical thing to try to do? given the obligation to the shareholders? >> first, we did review the case law and i think it was quite applicable. i am not a lawyer with the advice i got was directly on the situation that we were looking at specifically that short-term losses no matter how large are not basis for mac in this case only long-term to significant losses in revenue or revenue production are grounds and of course merrill lynch has proved to be a profitable acquisition for bankamerica. why not negotiate a better price, that wasn't the issue that lewis raised. he was talking about breaking off the merger but i think that the walls of be very dangerous because the markets would have been faced with the uncertainty of whether the deal was going to

go through merrill lynch would probably not be able to survive absent the support of bank of america said there would have been immediate problem with merrill lynch which would have created broad problems in the financial market. >> even if they threatened to do that in the context of negotiating? >> well, you can't negotiate anything unless you are willing to go through with your threat. and so therefore there would have to be a probability in the mind of market participants that in fact bank of america wouldn't go through. >> you think that would be considered a plus? >> it has been stabilizing as well, yes. >> and in consummating though, the merger as it was originally planned, didn't the bank of america shareholders take a good part of the hit of the merrill had losses in? >> not in our view, as i said

when i talked to mr. lewis rice stressed not only was invoking the mac that for the financial system broadly, but i thought our opinion was that it would be bad for bankamerica in itself and if invoking mac had cost bank of america to feel or to become, have to be saved on the emergency basis that clearly wouldn't have been good for the shareholders of bank of america. of course in the end he had to make the judgment what to do but that in my opinion it was not obvious at all invoking the mac was a good thing to do the cutting for bank of america shareholders. >> and you think he made the decision on his own without undue influence from the government in any way? >> i believe he did. >> thank you, mr. chairman. >> thank you. mr. chairman, i know that we have agreement we finish up one. would it be possible for you to say 1:10? will that create a problem? i understand the agreement.

thank you very much. >> let me say to the members but we will do is decide ten minutes on each side and of course why don't we yield five minutes to the chairman, the ranking member on the committee? >> thank you mr. chairman i will be brief. i just want to go through a couple of quick questions. first of all, it appears as though much of the media thinks the end justifies the means, meaning that even if there were threats were if people felt threatened to go through it's okay because it worked out. do you agree with that? >> no sir, we use only legal and ethical means. >> i appreciate that. do you agree at all times the rules law and the expectations written into both the letter and the broad meaning of the law should be the guidance for all transactions done behind closed

doors by federal officials? >> yes, sir. >> as we choose to find ways to resolve the ambiguity between ken lewis, hank paulson, yourself, and of course a number of people whose e-mails have been cited today, are you prepared to answer in writing, not to return here probably, additional questions that may come up that would help us clear that up? >> yes. >> do you at this time believed intentionally ken lewis, hank paulson or any people decided today in e-mails intended to lie in their statements? >> i have no judgment on that. >> but you believe in good faith they think what they are saying is true as far as you know? >> as far as i know. >> do you think the federal regulators should pick winners and losers as they go through trying to figure out in a crisis like this who gets to know who or who gets bailout money and

doesn't? >> i did all these interventions are on fortunate and only made necessary by extreme circumstances. >> earlier one of the people we mentioned was mr. lacquer in light of his e-mail paraphrasing a longer discussion, do you intend to speak to him and try to clarify how the difference in interpretation could have happened? >> i have done so already and he didn't have any further recollection. >> then i would like to yield to mr. burton the balance of his five minutes. >> let me say i don't want to dwell on this but one of the biggest problems i have is the government telling the private sector what to do and how to do it. we had the head of general motors literally fired by the government. there might have been justification for his removal but i didn't think the government ought to be telling somebody who is answerable to the stockholders with they are supposed to do. one of the things that concerns me is on december 5, big

american stockholders approved that sale or purchase and merger when they thought it was a 9 billion-dollar loss and then the 14th the found out it wasn't 9 billion but 12 billion, and then because they decided they didn't want to do that they contacted you and mr. paulson and whether mr. paulson said directly you told him to do it or not to do it with the inference was there that the fed said if they pull out of this deal the board and the ceo is going to be gone. mr. iraqi said on the 20th, two days before they made the decision to go ahead with a, he said just a long talk with them back. says they think that the mac is irrelevant because it is not credible and intends to make it more clear if they play this card and then need assistance the management is gone. so even though they were going

to incur $3 billion more in liabilities because of the pressure put on by you and mr. paulson it went ahead with the deal because they felt they and their management was going to be fired. now that's the problem on have. the government is coming in and saying you're going to do this or else. this is not a socialist society. this is a government of free enterprise of the people and by the people and for the people and what bothers me is they felt they are incurring $9 billion found out it was 12 billion you told them, you and mr. paulson told them your going to do this or else and i think that's wrong. you can make a response if you like. >> my response is i never said that to mr. lewis. >> you never said this to mr. lacker? >> again, those are his words summarizing a longer discussion said a single thing than what you're saying. but he said was that if they took this decision and if they required to be rescued, that if this decision led the markets to

attack and america and create a destabilization of the company and the government had to come in on sunday night to save them we would take into account thinking about management that is a different thing and i did not say that to mr. lewis. >> what about your attorney who said you were going to put pressure? i brought that up in my previous five minute. >> again, i did save three strongly -- but i said to mr. lewis we strongly believe that invoking the mac was bad not only for the financial system but the bank of america but i didn't tie it directly to replacing him or the board. >> i yield five minutes to the gentleman from ohio. mr. kucinich. >> i thank the gentleman. chairman bernanke, your staff believed bank of america knew about milledge's accelerating losses in mid november. for months before coming to you,

and weeks before the shareholders voted to approve the merger. those fourth quarter losses rose over 15 billion out of the pockets of bank of america's shareholders. but i want to ask did the fed know about those accelerating losses before the fed approved the merger at the end of november? >> no, i don't think we did. >> may i introduce into the evidence this e-mail which is from the new york fed to autrey of merrill lynch dated wednesday, september 17. it says hope this gets to you. our management, that is the new york fed, has asked to continue the flash report on a daily basis and i am sure with the

sec. so the fed was receiving detailed information by which they could have concluded that the overwhelming losses at merrill lynch were more than problematic and that the fed could have done something if they chose. now, are you familiar with this e-mail? are you saying that there is no -- >> we are certainly involved in a lightweight in the oversight of those -- of merrill lynch since we began to lend to them but we are not the formal supervisory and information about their losses -- >> but mr. chairman, the fed knew what think america knew. you were saying earlier with respect to bank of america as a matter of fact you put on them the responsibility to notify the sec but yet you knew before the merger was approved.

>> and nov we didn't know about 14 billion, i sure we didn't know that. >> but you knew about merrill lynch's condition before you approved the merger did you not, did you not know about their financial condition failing before you approved the merger if not? if you say no again that flies in the face of this e-mail that came from somebody at the new york fed tracking merrill lynch on a daily basis. >> they are tracking it but it's difficult to know what the evaluations are. they have to be done by professional asset managers. i wasn't aware. all i can say is i wasn't aware and i don't think anyone else was aware of the $14 billion -- >> there's another e-mail that the fed has requested daily p and l profit and loss relative to merrill lynch. now, mr. chairman i'm going to enter that into the record as well.

>> without objection. >> when you permitted the merger of this company to be to fail you knew the company would be a significant player in four of the five critical financial markets namely wholesale payments, foreign exchange, u.s. government agency securities and corporate and municipal securities. isn't it true the combined entity of bank of america and merrill lynch is a significant player in four or five critical financial markets was a key rationalization for the fed to bail out the merger? >> i don't know i would have to get back to you. >> excuse a? >> i don't recall the details. >> well i am going to read a quote from a fed memorandum entitled considerations regarding invoking the systemic risk exception for bankamerica corporation and the quote is an ability of these organizations to fulfil their obligations in these markets in a related system would lead to widespread disruption in payment and settlement systems in the u.s. as