>> in an e-mail, we know from a subpoena the e-mail from the fed that mr. geithner, blakey said was aware, and was at least aware of an ultimatum to ken w%@@@ @ @ @ )@ @ @ @ @ @ @ @ @ ) >> there are notes from bank of america, the ceo said to fire this person, if you do this, and tim geithner agrees. he was very involved, step by step in the process. he was working for the third party. >> my only association with him during this time was the occasional phone call on the general developments. i was not aware of anything else. >> did you have conversations

about his conversations -- you have a conversation with mr. paulson about his discussions with ken lewis because there has been testimony and we have heard that paulson said very clearly that he would fire ken lewis and the board, and it seems to me in the breeding of all this stuff is that the government became one, so perhaps what mr. paulson sd was thought of as coming from you, and there could be some of this coming about. so, confusion coming about after the fact. >> the chairman's time has expired but the witness can answer the question of course. >> could you describe the conversation you had with mr. paulson about his conversation with mr. lewis? >> he reported back to me that mr. lewis as i recall, had decided not to invoke the mac

and that laid upon the basis for developing the transaction but again i never told anyone to threaten mr. lewis. >> i thank the gentleman. the chair recognizes mr., of maryland. you may proceed. >> thank you very much mr. chairman. as i listen to you very carefully i think i get it. you were so intertwined in this thing and following up on mr. mchenry's questions, that it is hard to see for your participation and did and where paulson's began and i tiki to your own statement. one of the first things to say in your background is, bankamerica announced an agreement. i did not play role in arranging this transaction in the federal reserve assistance was promised are provided in connection with that agreement. is that accurate, yes or no? >> yes.

>> albright. then you go want to talk about all the things it did do. i am confused. let's talk about this whole situation with one of the things you did. this is your statement. it says, responding to the bank of america in the discussion, i, talking about yourself, expressed concern in invoking the mac would until significant risk and then you go on to talk about that. we had mr. allyssa testified before us that he has been an experienced guy in this whole banking stuff for many years. he took this mac situation very seriously and then paulson comes along and you come along, and your own testimony and you say you know, i don't think that you are right on this. but basically it sounds like you did not believe in the

competence of mr. lewis. i'm just finding this out today. is that right? did you think he was confident? yes or no? >> that is not a yes or no question. on this particular issue i think invoking these mac would have been a mistake and i would like to mention the first reference was to the original september deal which i was not involved in any way. >> yeah that you were all lined up with the rest of it. now, so, you felt that he was competent, incompetent with regard to this issue, the mac although he was an experienced banker, although he had a fiduciary duty to its shareholders, to his board and i know that you are always concerned about disclosure, right? that is a major. >> certainly. >> certainly, but the man who would be held responsible if his bank went down, you say to him, when he pulls up this material,

this mac and says you know what, i don't do this but i'm taking this very seriously and i think i had better declare a mac so when he declares that, after all of his experience and what have you, then you come along and say, although 80 short duty to disclose certain things, although it is your duty and you are going to be the one who is going to get hit if this thing falls down, i am going to put my judgment above your judgment. is that basically right? >> no, that is not right. i offered my views based on my experience as the federal reserve chairman and based on advice i got from this that that invoking the mac cannot be a good idea. he himself was uncertain about what to do that at all times it was his decision to make and he understood that i believe. >> i don't know whether he saw his testimony that the man did everything he could not to-- we

got into a point where he basically said he felt threatened, but he tried to say that he wasn't written. there is not a person in this room who did not understand that he was threatened. view believe in use the word several times in this hearing. you used it. i didn't, you did. >> to say that i did not threaten anyone? >> no, no, you use the word that he was threatened. i think he may have been referring to paulson. all i'm saying to you is that i can see how we got to where we have gotten too, where it appears as sith we have got paulson, we have got lewis saying that you may have been behind the scenes doing some things and we have got you saying you are working on doing some things, but at the same time you come back and say you know, i just gave my opinion. it was up to him. i do not think, and i am asking

you, do you think it was up to him. when paulson comes to him and says i'm going to fire you and release your board, is that the way he would want things to happen? in this regard? >> i don't know what paulson said to him. >> the gentleman's time has expired but-- the gentleman's time has expired but the witness should answer the gentleman's question. >> i don't know what mr. paulson said to him but it was always his decision and i did not threaten him. >> thank you. >> the chair recognizes mr. bilbray. >> thank you mr. chairman. mr. chairman, you know, i know this whole process looks like an inquisition. we are not here to indict just a question, and to find out, try to work out the reality here. i think it is a little more confrontational than it should be traditionally so let's

remember you are placed in that position of being under oath and i am hearing testimony going back and forth so i'm trying to find out how to people may perceive something differently, how words may be changed back and forth. so, let me just ask you, at that time or at this time, did you believe that merrill lynch was too big to fail? >> i thought it very likely that if merrill lynch failed, it was after robbing and-- the lehman brothers and it would create very serious problem in the financial markets, i did. >> as a manager, he pretty well filled merrill lynch needed to be addressed one way or the other to keep it from going under. >> i thought letting it failed would be, pose a serious risk although it was not clear we could that prevented it from failing. >> okay, now, i saw that

committee's statement here and it is in the record, that when someone said, did you in polk a threat or something else, that they invoked the mac there would be repercussions to management. and, we can pull up the record. i am almost sure you said no, i didn't say it that way but i did indicate that if they invoke the mac and there was, what was that? they needed assistance afterwards, that there was this created situation where they needed assistance then there would be problems. and, the clarification there was the fact that it wasn't just this, these mac but it is that they did they mac in needed to come to us for assistance because of that arrangement then there would be hell to pay. that was the inference of your statement at that time. >> that was what was in mr. lacker's e-mail, but i did not make that statement to mr.

lewis although i don't think it is unreasonable if someone makes a decision that endangers the company that he be accountable. >> that is what i want to qualify mr. chairman because today he did make the comment that you felt that way and you felt comfortable with that. i thought you indicated that you communicated that that time, that not just if they invoke the mac but there was assistance needed later after the above the mac then there would be repercussions. >> i don't believe i said that. >> mr. chairman i would ask, because we need to clarify that because i heard something from you today that sounds very familiar and that is why i went back to that statement. it wasn't just about the mac, it was the mac then if they are needed assistance then there would be, management should be held responsible and i just thought that your statement today kind of reflected the statement of the december 202008

statement. we can go back in the record and see that. i am trying to help clarify. >> would the gentleman-- >> yes please. >> without objection. >> now, when you get into this, you said we did not guarantee anything and you said there was no dollar amount referenced, but could have you in this conversation, instead of saying we will pay this much out or we'll get out of they could there have been any discussion statements like look, if there is a problem here, we will take care of it or we will make you whole. this deal will not impact you and the long run, that we will cover the difference? >> we committed to work with them to make sure there would be a stable company and that they would not collapse because of this issue.

>> okay, so i'm trying to clarify here because we are going with the testimony so in other words, you are in a situation where you look at to handle this merrill lynch problem anyways. you have what looks like a merger forming. all at once the bia is starting to get cold feet and maple. they are seeing it from the bia, i mean bank of america taking on this burden. you see, you are going to have a bergner one way or the other. is it safe to say it looks simpler to get them to take this on so you can manage it as a single piece rather than going back and forth? >> the gentleman's time has expired for could you want to put that in a question and mr. bernanke can answer? >> let me just finish with this. you stated today that it you had all to do over again, you believe today that you would do

exactly the same. later in your testimony-- >> i'm going to take that as a question. >> i would question the fact, how do you explain the fact that today you did at the conditioning clause, that you did exactly what he needed to do for what you knew at that time? does that lead you a question? with that statement made today, this that leave in the back of your mind that maybe there things he would have done differently? >> i don't know anything material that would have affected that given the powers we had and the situation of the time. >> the chair recognizes mr. clay. >> thank you mr. chairman and thank you chairman bernanke for coming today. you have stated-- >> would the gentleman speak directly into the microphone? >> u.s. stated that the fed acted appropriately regarding issues of public disclosure. you have further stated that neither you nor any member of

the federal reserve ever directed, instructed or advise bank of america to withhold from public disclosure any information relating to merrill lynch including the losses, the compensation package, packages or bonuses? and i can believe that and i found you to be a person of integrity and of the highest degree. retrospective lee, looking at the developments that occur with the whole saga be and a and the department of treasury and looking at the losses invested for individuals of sort, to you feel that you had some responsibility to disclose some of this information that@@@@@ @

this was the responsibility of the bank of america to disclose. we were not required to disclose the terms of the deal. >> at what point does the investor become less important than the investment? >> i thought that this system may collapse and this would be a good thing for the investors. >> and this is your responsibility >> my responsibility is to protect the financial system. >> >> at what time should you disclose the information? public? >> with respect to this particular issue the law is

clear that any action regarding t.a.r.p. needs to be disclosed within a week and we did that. >> do you believe that the people where better served by being uninformed in making the investment decision, especially when official america knew there were misrepresentations in the financial status? >> again. those judgments were up to bank of america. our job was to make sure the system was stabilized and that was our primary focus. >> mr. chairman why did you think it was necessary for bia to inquire merrill lynch, when lehman had been allowed to fail? what was the thinking of saving aig, merrill and in these companies failed to adequately perform and uphold their fiduciary responsibility to its

stockholders? what made this different from lehman? >> we made extraordinary efforts to prevent women from failing a we were unsuccessful partly because the couldn't find a merger partner and bank of america was a potential partner. they decided against it and we did not try to endorse them to do it. we didn't have the powers and that is why they failed. we have for very concerned about it and our concerns proved to be justified. with respect to the other cases we did everything we could to avoid this is the mcfeeley because of the rest of the financial system. aig was possible to address because the large company provided collateral that would allow us to provide liquidity to the financial products division which was a source of the problem. after the congress passed the t.a.r.p. legislation it was then much more direct and easy to address these problems and had we had the t.a.r.p. money in september we might have been able to address the lehman problem. >> was it really necessary to

salvage aig? i heard your explanation but they failed. they failed on on their own. they feel themselves. >> i had no sympathy for aig and particularly the financial products division but my concern was that they feel that the consequences would have been a worldwide banking grund, is severe meltdown and very unknown the difficult consequences for the global economy and i did not feel like to take that chance. >> and i guess we thought the same about american automakers if you months ago, that they just couldn't fail either and they couldn't go into bankruptcy, but we know a different story now. thank you mr. chairman for your responses. >> i thank the gentleman. the chair recognizes mr. fortenberry. you may proceed. >> thank you mr. chairman and thank you chairman bernanke for your appearance here today. i read your testimony and it appears to me to be reasonable

explanation of their role in the bank of america, merrill lynch merger and advocacy of the sir additional bailout funds. however, well that is the narrow purpose of this hearing to unpacked whether not there were any conflicts there and certainly you can understand the cynicism in that we have conflicting impressions from you and mr. lewis about the nature of this deal i think fundamentally what is the heart of the matter is the feds future role as a systemic regulator. in that regard let me go back to a couple of points that we just touched on. do you believe it was in the best interest of this country for merrill lynch a bank of america to be merged and to receive the bailout funds that they received, first of 25 billion between the two companies and later the 20 billion as bank of america spread concern or to put it another way waffling about the potential deal? >> i think it was critical that we avoided the failure of those

firms and the implications of what it had for financial system. we did so and with the protected the taxpayer and again i think we did the right thing. >> one thing that concerns me about this is information we have from the fdic chairman, sheila bair wrote to you prior to the final bailout monies being received by bank of america. she said, strong discomfort with the steel at the fdic, for all the reasons you and i have discussed. what did you discuss? >> my recollection is our concern was not about taking action to stabilize bank of america. her concern was the fdic would have financial exposure is part of the transaction and she was concerned in particular because the transaction involves not only a bank but also an investment bank which was not in her responsibility so it was the details of the transaction that for her concern not the basic idea, taking steps to stabilize the company.

>> currently we have a situation it is my understanding were ten major banks control about 50% of they deposited assets in this country. bank of america being the largest. is this a systemic risks? >> we have a large bank and under our current system and particularly in the current circumstances with financial systems the what are your the failure of one of those firms would be dangerous for the economy and that is why i believe that the centerpiece of the financial regulatory reform should be steps to get rid of too big to fail, to find measures that allow large firm to fail when it is appropriate but to do so any way that does not bring everything down with it. >> i agree with that assessment but i think it is pointing to the need to, in whatever future framework that we have come to consider the fact that we have ten banks controlling in majority of assets in this country and that systemic risk is very real. do you agree with that? >> it is certainly real now but

i think there are steps that reduce the risk associated with those things. >> what would be the steps? >> for example greater oversight, capital and supervision of those companies. a resolution regime that would, that assumes the eljer-- >> in the case of failure, but that would treat more market discipline because lenders to those banks would know they would not necessarily be made whole and the case of a billion and would exert more discipline on the companies. >> the point i am driving at, are these two big? are these banks to bid? >> i think it's important banks have no incentive to grow just to become too big to fail. the larger banks probably have some other economic purposes including global transactions networks and the like. why don't we go back to the world with very small banks. >> but we are concerned that this level of concentration in the hands of too few is a potential system problem.

>> absolutely. >> mr. chairman i would like to deal the remainder of my time to mr. burton. >> the gentleman has the remainder but time which is a minute. >> thank you very much. you indicated that secretary paulson's comments that he made that threat after a request of the chairman bernanke was changed later on by mr. paulson. so, what he said was then i think this ought to be in the record his prediction of what could happen, talking about you, his prediction of what could happen to lewison the board with his language, was paulson's language but based on what he knew to be the fed's strong information to bank of america attempting to pronounced the deal. you were the fed, and he said it was based upon the knowledge that the fed's strong opposition

to bank of america attempting to renounce the deal with something that he knew to be the case, and that he, he was in effect speaking on behalf of what you've sent to him. >> the gentleman's time has expired. chairman bernanke you are directed to vendors question. >> we were strongly opposed to that action for the reasons i have described. >> is that your answer? the chair now recognizes mr. welch. >> thank you. >> thank you mr. chairman. mr. bernanke i have one comment into questions. my comment is thank you for your incredible service and very turbulent times. you have been very steady and all of us appreciate that. two questions, one that mr. lewis and is following up on what mr. fortenberry was asking about. mr. lewis was here and he had a number of different stories on a single transaction. >> told the shareholders that this merrill deal with a great

deal for them and persisted in that story even in december after he found out about $9 billion additional deterioration into frankly my amazement and shock he never bothered to tell the shareholders the news that led him to add extra assertion he made that it was so dire that he might invoke the nuclear option of the mac klauss. and then he told us basically that, using his words, he did not use the word fret but he said there was heavy pressure from the fed and treasury to go through with this deal, with the assurance that the american tax they payer would back up any of these toxic assets from marolt. and i will just ask one specific question about that. one of the assertions to the board was that the treasury and fed have confirmed they will provide assistance to the corporation to restore capital and protect the corporation

against the adverse impact of the merrill lynch assets and he went on to say the corporation can rely on the fed and treasury to complete and deliver the promised support by january 20, the dates scheduled for the release of earnings by the corporation. in your recollection is that an accurate statement by mr. lewis? >> we did indicate that we would work with him to develop a transaction, to develop a package that would preserve the stability of this company may propose to do that by january 20 and that included-- >> and that included backing up the toxic assets? >> there were no specifics. there were different possible approaches in the events that apparently won't be consummated. >> what he was specifically referring to us the news that they were aware of that merrill had far more toxic assets than had been disclosed to shareholders when they approve the deal in the early part of december so is it your recollection that the assurance he gave his board, that the fed

and treasury would back up the toxic assets and merrill was accurate? >> he knew in the case of city for example that we use both capital so clearly that was one of the options we were discussing as part of the transaction. >> whited nike to this question that was started by mr. fortenberry. you have boys the stated in my view that we do need a new regulatory regime to protect the economy from systemic risk. there really to approaches that can be taken in the congress has been making judgment which is the better one to go. one is the supersize regulator or some entity that has the capacity to monitor their risk of these huge financial conglomerates that bring us all with them. that is one approach. the other approach is to take the view that if an institution is too big to fail it is too big to exist. and the virtue of that frankly is that it brings them down to a size where we don't have to depend on the vigilance of

regulators being overcome by the influence of the financial industry. so, my question to you is, does it make sense for congress to pursue a policy that says an institution is too big to fail without threat to the economy and is that in fact a big to exist and instead of regulating it we should break it up? >> there to options. one is to allow large banks to take steps that will protect the economy if in fact one comes to the brink of failure which is what treasury's proposal includes an the other possibility is restrict the size of things for god think it is legitimate to discuss both options and i would just point out that very large banks to have an economic function, a global reach, diversity of the activities, but congress may wish to look a different options. i don't want to prejudge what you will be deliberating. >> thank you. i yield back. >> the gentleman yields back.

when our colleagues on the republican side have others who show up there will be recognized we recognize mr. kanjorski. >> mr. chairman thank you for your testimony and i have listened to a lot of my colleagues today use words like threats, even lies, lying. the reality is it the judge cautions an attorney with certain conduct, it would constitute contempt. that is not a threat, is it? that is talking to the power of the court, laying out what the rules are. i can't see the people are jumping to conclusions that by either yourself for the secretary of the treasury, in forming a bank officer or a board that there were powers of the government to take action of a certain way which could constitute removal of the ceo or