that aside, i can understand from that one sentence, without knowing what the case law was, that there was that conclusion. but could not a bank of america have negotiated a reduction in price with merrill lynch had it invoked the m.a.c. clause? wouldn't 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'm not a lawyer but the advice i got was that it bore very directly on the situation we were looking at, specifically that short term losses, no matter how large, are not a basis for a m.a.c. in this particular case, only long-term, significant losses in revenue or revenue production are grounds and of course merrill lynch has

proved to be a profitable acquisition for bank of america. the why not negotiate a better price, that wasn't the issue that lewis originally raised, he was talking about just breaking off the merger but i think would have have been very dangerous because the markets would have been faced with the uncertainty of whether or not the deal was going to go through, merrill lynch would probably not be able to survive absent the support of bank of america so there would have been on immediate problem with merrill lynch which would have created broader problems in the financial markets. >> 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 minds of the participants -- >> you think that would have been considered a bluff. >> i think it would have been ste stabilizing as well, yes.

>> and in consummating, though, the merger, as originally planned, in effect didn't the bank of america shareholders take a good part of the hit of the merrill lynch losses? >> not in our view. as i said when i talked to mr. lewis about this, i stressed that not only was invoking the m.a.c. bad for the financial system broadly but our opinion was it would be bad for bank of america and in particular if invoking the m.a.c. caused bank of america to have to be saved on a emergency basis by the government that clearly would not have been good for the shareholders. in the end he had to make the judgment of what to do but in my opinion it was not obvious at all that invoking the m.a.c. was a good thing for shareholders. >> you think he made that

decision on his own without undue influence from the government in any way? >> i believe he did. >> thank you, mr. chairman. >> thank you very much. mr. chairman, i know we have an agreement that we would finish at 1:00. would it be possible for you to stay till 1:10? would that create a problem for you? i understand an agreement. okay? thank you. thank you very much. let me say to the members. what we will do is device ten minutes on each side and of course why don't we yield for five minutes to the chairman, ranking member on the committee. >> thank you, mr. chairman. i'll be brief. i want to go through a couple quickest. first of all, it appears as though much of the media thinks the end justifies the means, meaning that even if there were threats or people felt threatened to go through with deals, it's okay because it worked out.

do you agree with that? >> no, sir, we used only legal and ethical means. >> i appreciate that. do you also agree that at all times the rule of law and that that, the expectations written into both the letter and the broader meaning of the law should be the guidance for all transactions done behind closed doors by federal officials? >> yes. >> as we choose to find ways to resolve the ambiguity between ken lewis, hank paulson, yourself and of course a number of people hoops e-mails have been cited today, are you prepared to answer in writing, not return here probably, additional questions that may come up to help us clear that up? >> yes. >> do you at this time believe that intentionally ken louis, paulson or any of the people we cited in e-mails intended to lie

in their statements? >> i have no judgments. >> but you believe in good faith they think what they are saying is true at least as far as you know? >> as far as i know. >> do you think federal regulators should pick winners and losers as they go through trying to figure out in a crisis like this who gets to own who or who gets bailout money and who doesn't? >> i think all these interventions are very unfortunate and only made necessary by the extreme circumstances. >> earlier one of the people we mentioned was mr. lacher. in light of his e-mail, paraphrasing a longer discussion, do you intend to speak to him and try to clarify how the difference interpretation could have happened? >> i've done so already and he didn't have any further recollection. >> then i'd like to yield to mr. burton the balance of this five minutes. >> let me just 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. we had the head of general motors literally fired by the government. now, 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 what they are supposed to do. something that concerns me is on december 5 bank of america stockholders approved that sale or that purchase and that merger when they thought it was a $9 billion loss and then in the 14 they found out it wasn't $9 billion but 12 and because they decided they didn't want to do that, they contacted you and mr. paulson and whether mr. paulson said directly or you told him, the inference was there that the fed said if they pull out of this deal, you know, their board and c.e.o. will be gone. mr. lackey said on the 20th, two

days before they made the decision to go ahead of it, he said, just had a long talk with ben, says they think that the m.a.c. threat is irrelevant because it's not credible and also intends to make it even more clear if they play this card and then need assistance, management is gone. so even though they would incur $3 billion more in liabilities because of the pressure put on by you and mr. paulson, they went ahead with that deal because they thought they and their management was going to be fired. now, that's the problem i have. the government is coming in and saying you're going to do this or else. this is not a socialist particular society. this is a government of free enterprise and of the people and by the people and for the people and what bothers me is they thought they were incurring $9 billion, they found out it was $12 billion and you and mr. paulson told them you're going to do this or else and i just think that's wrong, you can make a response if you like. >> my response, sir, is i never

said that to mr. lewis. >> you never said this to mr. lacher is wrong. >> he's an internal purpose person at the fed, those are his words, he said a more subtle thing than what you're saying, what he said was if they took this decision and if they required to be rescued, that if they -- if this led the markets to attack bank of america and create a destabilization and the government had to come in and save them on sunday night we could take that into account, that's a very different thing and also i did not stay that to mr. lewis. >> what about your attorney who said that you were going to put pressure on them? i brought that up in my previous five minutes. >> well, again, i did say very strongly -- >> he works for you. >> i said to mr. lewis that we strongly believed invoking the m.a.c. was bad for the financial system and bank of america but i didn't tie it directly to replacing him or the board.

>> you have five minutes, the gentleman from ohio, mr. kucinich. >> chairman bernanke, your staff believed that bank of america knew about merrill lynch's accelerating losses in mid-november, a full month before coming to you and weeks before its shareholders voted to approve the merger. those fourth quarter losses rows to over $15 billion out of the pockets of bank of america shareholders but i want to ask you: did the feds know about those accelerating losses before the fed approved the merger at the end of november? >> no, i don't think we did. >> well, may i introduce into evidence this e-mail. this is from dennis -- of the

new york fed to audrey over beof merrill lynch and it's dated wednesday, december 17 and says "hope this gets to you. audrey, our management, has asked to continue the flash report on a daily basis. and i'm sure you'll share with the s.e.c. " 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 to. now, are you familiar with this e-mail or are you saying there's no -- >> we are certainly involved in a light way in the oversight of those -- of merrill lynch since we began to lend to them but we are not their formal supervisor and information would not be --

>> but mr. chairman, the fed knew what bank of america knew? you were saying earlier with respect to bank of america, as a matter of fact, you were -- you really put it on them the responsibility to notify the s.e.c. but yet you knew, you knew before the merger was approved? >> in september -- in november? i don't -- we didn't know about the 14 billion, i'm sure we didn't know that. >> but you knew about merrill lynch's condition before you approved the merger. you -- did you not? did you not know about their financial condition of failing before you approved the merger? if you are saying no again, that flies in the face of this e-mail that came from somebody at the new york fed who is tracking merrill lynch on a daily basis. >> well, they're tracking it but it's difficult to know what the valuations are. they have to be done by professional asset managers. i was not aware and i don't

think anyone else in the fed was aware of the $14 billion. >> there's another e-mail saying the fed has followed up with a request for daily p & l, profit and loss relative to merrill lynch. now, if -- mr. chairman, i'm going to enter that into the record as well. >> without objection. >> when you permitted the merger of this company that was too big 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 and agencies securities and corporate and municipal securities. isn't it true that the combined entity of bank and america and merrill lynch as a significant player in four of five critical markets was a key rationalization for fed action to bail out the merger? >> i don't know. i'd have to get back to you on that. >> excuse me? >> i'd have to get back to you on that. i don't recall the details. >> i'm going to read a quote from a fed memorandum entitled

"considerations regarding invoking the stem risk exception for bank of america corporation." and the quote is "an inability of these organizations to fulfill their organizations in these markets and related systems would lead to wide spreed disruptions in payment and settlement systems in the u.s. as well as abroad." now, in our investigation, we have not encountered any evidence that the fed considered the potential for systemic risk when you approved the merger of bank and america and merrill lynch which only weeks later was too big to fail. now, chairman bernanke, did you really believe ken lewis' threat to invoking was m.a.c. was a bargaining chip as you stated in an e-mail? >> i thought initially it might be, yes. >> his use of a bargaining chip would help him obtain a deal he would not have otherwise

received had emirly asked for increased assistance from the government. >> but as i also said later after listening to him and having more discussions, i came to the conclusion that he was really uncertain about what to do. we provided advice, which he ultimately took, and we took steps to prevent the destabilization of his common and the system. >> mr. chairman i ask for one more minute. >> you will be granted an additional hin. >> isn't it true that you did not believe the merrill lynch losses merited special attention from the government? let me direct your attention to handwritten notes from your first meeting with lewis on december 17. you reportedly stating the downside of 50 billion doesn't sound big for bank of america. 50 billion refers to merrill lynch assets lewis wanted protection for from the government. the record clearly shoes you did believe that there would be systemic consequences if bank of america took steps to back out of the deal with merrill lynch irrespective of whether it went to court.

did the threat of a m.a.c. which you believed would have serious consequences influence your willingness to give them financial assistance when you didn't believe it needed to have it? >> we had demonstrated with citigroup, for example, if we saw a major financial institution about to fail and to risk the stability of the system we would try to take steps to stabilize it so i think we would have done it in any event. >> mr. chairman i want to conclude with this point. mr. bernanke has testified that he was concerned about systemic collapse, we all understand that. he was concerned about bank of america's collapse. we understand that. he said that the bank of america collapse would hardly be a good thing for investors. that was your testimony. but if the fed knew that merrill lynch was failing before the shareholders voted, why did you not inform the s.e.c. about this?yeah, if you knew about it

before you approved the merger? why did you approve the merger? >> the $14 billion of losses mr. lewis reported to us, i don't believe -- i'm sure we didn't know about that in november. >> gentlemen, time has expired. i yield five minutes to -- >> thank you, mr. chairman. we'll be -- mr. jordan will be primary closing but i want to wrap up a couple things. as you probably know kneel karscare has appeared before us and we found he didn't know at that time how much he had paid for things, didn't know what they were worth, didn't know how they valued them but he would get back to us and never did. i understand he's left the government. but what that's told me because it occurred in realtime, exactly when these things were going on, on a day-to-day basis you didn't know what assets were word, worth, including these toxic

assets. is that correct. >> very difficult to know. >> i appreciate your service in trying to do the best you could in this tough situation. but one thing -- my last question is: when it came to the m.a.c., you said a moment ago that it only could be invoked if in fact you had forward-looking lesser revenues, it was not material to the balance sheet, if i can paraphrase you, but to the income statement. that's what i heard you say. >> that's what i understood the memorandum to say. >> but if that's true, isn't it true if you have to restate your income, prospectively or retrospectively, then by definition the go-forward is reduced. in other words, if you never made as much as you thought you made because the assets materially degraded because they were never going to produce what you had said in the past, then in fact it is a m.a.c. event. so losses accumulating could we will have been a viable reason to predict that the enterprise

value going forward was less. wouldn't you say that was correct based on normal accounting? >> i shouldn't drift into securities law. the advice of my attorneys was that the m.a.c. would be unlikely to succeed and even if there was a significant probability, it could have caused a lot of disruption in the markets. >> we appreciate your effort here, i'll turn the rest over to mr. jordan ask thank you for everything you and tried to do to help our country. >> mr. bernanke, when did you know that you would not be able to go in and buy the toxic assets, mortgage-backed securities because if you remember back, the whole package was sold to the united states congress based on was told members of congress, what mr. paulson told members and i think i asked this question and mr. issa brought this up. you're a sharp guy, m.i.t. graduate, mr. paulson is smart, mr. geithner is smart. you convinced congress you could go in and clean off these assets

and yet ten days after that, after we passed this, i didn't vote about it but ten days after you bring -- don't tell them what the meeting is about and you have completely clean gd strategies. so did you know before congress voted on it or did you know after congress voted on it that you would not be able to go in and purchase these securities and do what you told us you were going to do? >> we knew after. one of the problems was that -- >> but here is what i want to understand. this was a month-long -- i remember the first conference call we listened into as members of congress was in september. you had a whole month, yet within ten days the strategy, probably a few days -- you had a whole month leading up to this convincing congress you could do this and yet within ten days complete change and yet you're bringing nine banks to washington, not telling them what it's about, not telling them you're going to force them to sign a form, completely change strategies and you look at as we went through the pattern of some might say deception where the banks come

to washington, not knowing what the meeting is about, mr. angula does the letter, what's happening with merrill lynch. i think it's a reasonable question to say: when did you know this? if you didn't know until after october 3 what took you so long to figure it out? frankly two weeks of debate in this congress, you remember they sent us home for a few days, came back and we passed this. >> i'd be happy to answer that question. the drawback of the asset purchase plan as we discovered was that it took some time, probably some months, to put it into operation, and we thought perhaps that would be possible but the banking situation deteriorated quickly and by columbus day we had a global crisis and the only way to stop it from spread asking creating a huge problem was to inject capital to have guarantees and take the steps we took. this was the only way to do it as quickly as was needed given the way the situation changed so what xhain gd was the financial situation between october 3 and

october 14 and we had no way to do the other approach because would just take too long. >> i have a few seconds and i'll completely change gears here. tell me, you can get up to this -- i appreciate this. the money supply. i didn't get a chance to ask you questions when you were in front of the budget committee and i apologize. a lot of people, lot of sharp people, are very nervous about where we are with the amount of money out there in the system right now. talk to me briefly, if you can, about your concerns there and how we are going to deal with what i think a lot of people believe will be real inflationary concerns in the not too distant future. >> the money is not in the system in any real way. the money is electronic deposits sitting in the federal reserve accounts. they are not circulating. the key issue here is can we unwind this money inplace to head off inflation. we have all the tools we need to

do that, we will certainly remove that stimulus and we are committed to price stability and make sure it happens. >> thank you, gentlemen. i yield to the gentleman from ohio. >> i ask unanimous consent to put into the record two sets of documents we received with subpoenas containing the e-mails and excerpts of documents i refer to today. >> without objection, so ordered. >> thank you. >> i yield two minutes to the gentlemanwoman from ohio. >> thank you, chairman and i thank chairman bernanke from his endurance. we all have to do our jobs. i would like to insert record into the information, background between bank of america, merrill lynch and black rock and i. >> without objection so ordered. >> i thank the chairman. i would like to ask chairman bernanke to submit from the record for the fed how did bank of america end up owning 49% of black rock. in 2004, the f.b.i. warned the public and administration

mortgage fraud was headed toward an epidemic level in our country. the fed did nothing. now the fed under your watch has hired black rock, a firm owned 49% by bank of america, headed by a man who invented the subprime instrument when it first bought them and later as black rock who traded billions of dollars of these securities to freddie mac and fannie mae over the last decade. i quote a sentence and will place in the record from bloomberg news "rocket like rise when at first boston was largely a result of his creative work with mortgage-backed securities, slicing and pooling mortgages and selling them as bonds and he took his concept to freddie mac where he sold the companies board on a billion dollar package." that was just the beginning of it. chairman bernanke, what material can you provide this committee and to the record that will explain how the fed will avoid conflicts of interest and self-dealing by that firm and

its c.e.o. in the execution of contracts you have signed with black rock? >> we'll provide you with the contracts and with a letter explaining how it works. >> i thank you. some lawyers have said systemic fraud or controlled fraud have characterized the mortgage securitization process. will you permit the f.b.i. access to the mortgage instruments being managed by black rock as the fed contracts are executed and fulfilled? >> if there's a reason for the f.b.i. to investigate and the f.b.i. has the right to investigate, we would not stand in the way of an appropriate investigation. >> thank you. how many contracts has the fed signed with black rock to handle freddie mac paper and fannie mae mortgage securities under your purview and how much will black rock be paid for those services? >> we have hired four asset managers to manage our mortgage-backed portfolio, black rock is one of them. i don't know how much we are paying them. >> will black rock be handling freddie mac paper? >> um, they'll be managing

g.s.e.-guaranteed papers including freddy, fanny and begin any. >> i would seriously urge your staff to go back and look at the operations of black rock and mr. fink's operations at first boston before he founded black rock in relation to what they transacted with freddie mac and when they did that. >> gentlemen, time has expired. thank you, thank you very much. let me thank the chairman for his time. and at the outset of this hearing, i said that it is time to shine some light on the events surrounding bank of america's acquisition of merrill lynch. at this point i would say we got a peek, not much, but we don't have full sunshine yet. i would make three observations before we close. number one, there are significant inconsistencies between what we have been told today, what we were told two

weeks ago, by ken lewis and what the feds' internal e-mails seem to say. it is still unclear whether bank of america was forced by the federal government to go through with the merrill lynch deal or whether ken lewis pull off what may have been the greatest financial shake down in a long, long time. as a result of this hearing, we have learned that the s.e.c. and the fdic played a role in this transaction as well but as i indicated, we're going wherever the road leads us so therefore let me say we're going to talk to the s.e.c., we're going to talk to the fdic and we're going to talk to former treasury secretary hank paulson, he has agreed to appear before the committee in july and i look

forward to that hearing. we'll also need to hear from the fdic and the s r s.e.c. so we can better understand what happened during the dark days of last december. so we will be hearing from them as well. so mr. chairman, let me thank you again for your time and i might have taken you two minutes over. i'm sorry about that. i apologize. thank you very much. there for, now the committee is there for, now the committee is adjourned. zjzzzzjzzzzçzjzzjzzjjzjzzjzzjzz[

. >> he was not a -- what you would call by mod enterms a kind of holistic -- he believed in hunting but he wanted to -- he did not believe in hunting so you make a species extinct. so, yes, he cared about snails and he cared about butter flies, he cared about wild flowers and wanted to make sure we had a place for that in modern society. >> tonight on "q and a," part 2 on the wilderness warrior, teddy

roosevelt and the crusade for america. tonight at 8:00 on c-span or tonight at 8:00 on c-span or listen on xm satellite. >> following prime minister's questions we'll show you the ceremony to welcome the new speaker. the questions tonight at 9:00 eastern here on c-span. >> house g.o.p. conference chairman mike pence is our guest and we'll talk about the republican agenda and other issues that are being confronted in the house of represti