today who have given up hope. we have been dealing with this for some time because we have @@@ @ @ @ @ @ @ m use we have the automotive industry is in terrible shape. we have had two of our major firms, general motors and chrysler file for bankruptcy even though they both came out of bankruptcy. this has a real dampening effect on jobs and job creation here in the city of detroit. host: what kind of tools to you have to deal with it? . . . they are going through. this didn't just happen, it's been in play for five to seven years and just got to the

o.e.'s. and there is a glut, too many dealers and suppliers. based on the market, it's shrinking. shrinking. therefore dealer base and supply base will shrink also. host: not only that but there are factories are closing down in the detroit region. what are your plans of working with public and private officials in the city, to help citizens move out of this phase into a new one ahead? guest: we are trying and have tried for the last several years not dependent just on the automotive industry for our survival. there are growth opportunities outside of the auto industry, what we are looking at today our health care industry is

strong. they have averaged about a 10% growth rate and projected to continue in that path for the next five years. so there is a lot of growth opportunities in health care. most recently at the state level the governor has put in quite a few incentives for the film industry. most of the people look at us as a manufacturing city, and say how are you going to convince the film industry to come to detroit or the state of michigan. and that's starting to happen and there is potential growth in that area. and because we have such a glut of homes in this area where people are not living because a lot of folks are leaving. there is a lot of work to do, so the construction industry in my opinion will go through a growth. host: of the homes that are

abandoned due to foreclosure, we have talked to officials who spoke of detroit is one area they want to start urban areas and help a new vision. i recall reading one as seeing detroit as the future and town centers with open space between them. what your thoughts on that? guest: i have only been if office 63 days and trying to get my arms around the budget and on a medium and longer term basis, we have to look at what the city will look at over the next five, 10 or 20 years. it's not predicated on new automotive industry or that we are a manufacturing center. but there are opportunities for growth, we have 145 square

miles and probably only using half that space. so we have a lot of property to figure out what we will do down the road. there is a lot of conversations with the appropriate people and other professionals to give us ideas of how to utilize that land. host: before we go to calls, can you give us numbers, what is detroit's plan for the year and can you operate in a deficit? guest: i have inherited a $280 million deficit. and that's got to be dealt with. but more importantly this year's budget which is projected to be balanced. but in the same token what is going on, the figures that are

a part of this budget, i have to go back and re-do. when you look at the houses in the city, where we get our taxes from. that's a problem because the value is not what we projected it to be. with both of our two largest taxpayers, general motors and chrysler coming out of bankruptcy. there will be a lot of plants that are closed down, we have to get back with them for an understanding where we are going to be in tax standpoint. and i am going through a process with the labor unions, we have 50 labor unions we have to deal with and none of them are under contract. so i started last week with some heavy contract negotiations, and hopefully we will be able to come to some agreement in the next 30-40 days. and put that in the budget, and understand our cost, and look

at where the revenue will be. and see what cuts have to be made and just how hard we have to negotiate. we are in a crisis, no doubt about it. and all of us will have to take some pain. host: have you yet been able to certify what amount and what kinds of federal assistance is coming your way? guest: that's a moving target also, to date we are over 100 million and some is earmarked and the stimulus package. the key is to try to maximize the help from the federal government, and not only continue to look at the earmarks and other opportunities. we are centralizing in a lot of cases things in the government that have been all over the place. as i take a look at what we have to do, so the left hand is

knowing what the right is doing, we are under that process and i think it's going to be a positive for us. i will hopeful that we will get in the area of half a billion dollar, that's the low side. i think that detroit than any other urban city in the country needs it more than anyone else. host: we have talking with mayor dave bing, and viewers can call or send comments by e-mail or a twitter message and we will mix those in the conversation. for mayor bing, this is from texas, republican line. caller: just as a republican, i feel bad for you folks up there. i talk to lawyer people, 12 to 15 people daily from your city.

i feel so bad for you, and it hurts me more to see the president telling these people out of work, that those jobs are not coming back. they are gone. and i guess with everything that's about to occur, we are being told under the new energy plan that they are passing, that the folks in america, will pay 100 to 300 dollars more on our electric bill. i talk to them all the time. and your citizens tell me they don't know what they are going to do. they just want to pack up and move. mr. mayor, can you comment on that please? guest: one thing that's a major problem in the state of michigan and detroit, we are losing a lot of our population. in detroit for example, we were a city of roughly two million people, and we now have half of

that population in detroit. and we are losing a lot of our young talent, they are frustrated and don't feel there is opportunity. but because of the situation we find ourselves today, as tough as it is, there is opportunity. i want to implore to our young people with a good education that they need to help us. i am hopeful they won't leave and go to greener pastures. there is a future here, it's going to be different from what it was historically. but we have to re-make our city and we need that young talent to remain here and help re-build the city of detroit. host: michigan, from our republican line. caller: hi, i want to say god bless you, it sounds like a

hopeless task. i am from michigan and in the county where i live the unemployment rate last month was 19.5. and my husband who has worked everyday of his life is 55 years old and was laid off four months ago. and we don't even know what we are going to do, i never considered the fact it would happen. the question i have for you is practical, on the supplemental money to the states, i know it was for a lot of different things. i was wondering is there a website you can go to do find out jobs being made by the supplemental and where you can apply for them? host: thank you becky, and

good luck to your family. guest: we have training dollars coming into the city through the stimulus package for the work development, a lot of the money is for job creation or people getting trained or re-trained in the industry. in the greening area and construction area and health care area. and even though our manufacturing area is going to continuously decrease, there is still opportunities. especially in the technical area for automotive. once again as bad as things are, we feel in the short-term things will turn around. hopefully we will bottom out and the opportunities to get the right training is what we have to matchup. host: here is a viewer that's more pessimistic, jo ann writes

that detroit's economy is dead, how do you bring it back? guest: as far as nafta, i won't agree that detroit is dead, we are alive. and we have a people that will fight for their existence. detroit has been the mecca, and we will fight that we have a place in the american industry and manufacturing sector. but we have to make changes for areas to bring us back. as far as nafta we are still one of the largest trading partners, it's not as big as it was. but as the auto industry comes

back, we will see the trade between canada and u.s. be strong. host: next question is from democratic line. go ahead. caller: yes, mayor bing, i was calling to ask whether or not some of the money you used for -- host: sir, your tv volume is up, and causing feedback, we will come back ñénto you. let's go to steve, independent line. caller: hi, mayor. not to lack compassion of the issues you are facing. but when i hear you say as i sit here in virginia, that you will be tapping into the federal government just as much as you possibly can. the only thing i am thinking,

that's coming out of my pocket or anybody not in detroit, it's coming out of their pockets and trying to shore you folks up to try to bail you out of a mess. and i am not sure that's where i want my money to go. guest: ok, i think we got a national problem. your money is not just coming to detroit. detroitans and michigan's pay taxes also. when you look at the programs that are in place, money is not going just to michigan and detroit but those around the country. but they are looking at those cities most hurt with the downturn in the auto industry. you have there are a lot of cities after getting help from the federal government. it is not just detroit. host: detroit caller is back on

the line. caller: my question to you is, can detroit and michigan get a share of the nasa money? every president has always backed nasa 1000%. i was wondering if we could develop some sort of relationship with nasa to bring in jobs and opportunities here to the state of michigan. hosguest: that is a situation where we will have to work together. there are things we can do differently to increase job opportunities for folks in michigan. that is a longer term process. it is something that i will get in contact with.

host: this is an e-mail from gary. she writes, he was one of the greatest basketball players of all time. he was a former resident of washington, d.c. of whom we are all proud. he will need to work some of the magic he once used on the court to get detroit after the mess that is years in the making. we wish him well. out of the mess. my question, why did you want the job? guest: because i have been blessed. i have had two good careers, as a 12-year basketball player and an independent entrepreneur supplying products to the automotive industry for 21 years. from a personal standpoint, i am ok. and as i look around and see what so many families are going through, and this downturn, people are losing hope and

frustrated. i couldn't just sit on the sideline, there are a lot of people hurting and i feel i can make a difference and took on this challenge. host: next question is from joe on the republican line. caller: good morning, and if i can shout it one more time, bingo, when you make a basket. guest: thank you. caller: hopefully you will bring some discipline from the mayor's office that you learned from the basketball arena. it's too bad you didn't get a contract like they do now, and just working for a dollar a year. and you said you had 50 unions to deal with. having come from a very, strong union such as basketball has

now, how are you going to take the tough stances that you are talking about? and lower salaries when in the basketball arena today the salaries are going sky-rocketing as well as other sports deals host: thank you joe. guest: when you try to compare sports and athletics today with those in the real-world. it's different, as you made the statement, to work for a dollar a year. that's exactly what i am doing, frankliment -- frankly. i understand as here in detroit we are a heavily unionized area. we must work together, for 19 years as a uaw company, we have

to work together. with that experience of unions and the private sector, i think i can take some things i have learned and the relationships that are established can be transferred to the public sector. but by no stretch of imagination is this going to be easy or painless. we are hurting here and there are hard decisions to be made. i made those in the private sector and will have to make them in the public too. host: a viewer sends this, as a former resident of detroit, i can say my reasons for leaving in the 90's, with the high crime corruption level, how do you expect to bring in new businesses? guest: as i ran my campaign, one of the high priorities was

crime and crime prevention. detroit is considered one of the more dangerous cities in the country. when we look at political leadership it's been a dismal. and that's something they wanted to change, to do the right thing for the people of the city. and not worry about themselves as individuals. and that's where i am blessed, i am financially secure, and i am not in this position to line my pockets. my two careers have allowed me do that. and now i can be focused to do the right things to the citizens of detroit. to bring trust back to the mayor's office. and i think i was voted in based on that. host: we have another caller

on the line. caller: good morning mayor bing, i was so happy to see you elected. i live in the suburbs of detroit, on the borderline. but i tell you if you can get as much stimulus money from the government to bring the state back where it should be, everyone will be proud of you. if we have to finance the banks and don't have a word to say, i give you 100% of my support and hope you get the city and state back. god bless you. guest: thank you very much, we are going to work diligently and make sure that happens. i have a good relationship with this administration and washington, d.c. and i think they understand the plight that the state of michigan and detroit is in. i am looking forward to not only maintaining the relationships that are

established. but increasing those relationships that we always have access. host: detroit's new mayor, 68 days and we have another caller. caller: good morning, being a resident of chicago, i am in the white collar industry. i have seen an influx of white collar and blue collar jobs coming from detroit to chicago. you are saying you are trying to grow other industries outside of automotive in detroit. but when you see the bleeding of people away from detroit, what is the plan to grow the industries when you have people leaving the city. and once they do leave, they have a bad taste in their mouth, and they are not going to move back to the city they

left. host: sir, thank you, we understand the question. guest: i think one of the things we absolutely have to do is change the whole business climate we have in detroit. and i think we are about doing that. and that started even before i came into office. because our unemployment is so high with plants closing, not only the o.e.'s, fords and general motors and chrysler, but those who supply the product. a lot don't see a future in the automotive industry, and looking to go elsewhere. but a lot of people can't leave because of the housing crisis. and we have to create a business climate for those folks who are still here that are unemployed or underemployed and make sure they understand where the opportunities for growth and job creation are

going to be. that's my job today, and i intend to make that aware and hopefully they won't quit on detroit. host: when you talk about opportunities, you listed the health care industry. will the discussion in washington over reform in the health care industry reflect that future health care as an economic base? guest: we have an aging population not only in the city but across the country. and because detroit is an area that supplied good benefits for their employee base, we have folks that appreciate that. and now that our population is aging and people are living longer, that industry will continue to grow. we have to make sure we educate and supply the people to that

industry. and with that we are still looking at a 10% growth over the next five to seven years . we have to make sure that folks get trained. host: next question, wendy, republican line. caller: o.cgod bless you, mayor bing. there were indictments handed down yesterday according to the local news. and i wonder what impact the past bad behaviors of the city officials will have on the economy moving forward. my husband is in the health care field. i thank god for that, and that he's a hard working man. he pays taxes in the city of detroit, even though we don't live there, in lincoln park. what is the impact on the left-over mess and will be able

to repair that? guest: thank you, i think this is an area that is hanging over our head for a long time. and now we are bringing closure to it. which i feel is a positive. it's almost impossible to move forward in the city, when they don't believe or trust their leadership. now a lot of things that have been hanging over our head for a long time are starting to be closed. and people are actually going to jail. they are indicted. i think that's a good thing, and i would hope that anyone in a political position, in a leadership position out there doing something wrong, i support what is going on. we are going to clean government up. we want to get the public to have trust and faith in us. and we have to move this city forward. with new leadership and from my vantage point, i think i in a good position to start anew.

as we look at the political future of the city council, there are a lot of good things going to happen. i think that change is good, we see that and i am a part of that. we want to make a difference. host: we have our next message from twitter, that says that mayor, revitalize michigan avenue, do that and i will be impressed. guest: michigan avenue is a major thorough fair in -- thoroughfare in detroit, and i want to be sure that we don't forget our neighborhoods. a lot is going on downtown and with new development. but we have to look at the neighborhoods, and not forget them. and give them support. that's a main stay in my

administration. we will continue to develop projects downtown, but our focus will be on the neighborhoods. host: next call is larry. caller: i want to respond to that caller to keep nickels and quarters in his pocket to help detroit. and the people in detroit voted for two of the most horrible mayors, and sometimes you deserve what you get for. and now we have a chance to do something. host: thank you, mayor how long is your term since you are taking over for the former mayor? guest: it's very difficult, because you are picking up the pieces of a lot of problems we have had over the last several years.

but it's a challenge. and the preparation, what i learned 29 years in business and 12 years as an athlete. taught me how important your teammates are and how important the folks around you are for your success. some of my decisions in terms of who you surround myself with is the key to bringing this city back. leadership is one thing, i think i can provide that. but on the on other hand, i have to select the right people with the right skill sets and bring this city back. host: read yesterday that the city is facing a lawsuit from city pension funds for underpayment. what is your thoughts about that? guest: that's been going on for a long time, when you have a cash flow problem, it's not that you won't pay it but elongating the process. we can't cut ourselves to

prosperity. that's only part of it. we have to stabilize our economy before we can start growing it again. that's what we are about, make i'm fortunate to have talented people outside the government tell me to look at city government and see how we can read engineer how -- our government. -- reengineer our government. they stayed with me 400 days with no pay. these are the some of the smartest people we have in our area. we are of looking at a plan of the implementation was some of the recommendations that they would bring forward. caller: i am so proud of you. i watched the show all the time.

it was a surprise to see you today. i voted for you. i intend to vote for you again. what i would like to know this, what do you see as we do what your plans? you have anything regarding the stimulus coming from the president, what changes do you see take place in detroit? guest: the big thing from the stimulus dollars is training. we have a lot of folks unemployed and a lot of the money in the stimulus program is earmarked training and re-training the employees. and a lot of money will be available in the police department, so we can upgrade our vehicles and bring the technology that's necessary to help us put a blanket on crime, if you will. because that's a big issue here

in the city of detroit. there is a lot of money will be available. our task and job is to maximize what we can get. and make sure we invest that money wisely, that we spend it wisely. that we get our people trained for the economy that's going to come. host: one more detroit call, this is joe on the independent line. are you there? caller: hi, a couple of quick questions, why don't city councilmembers have two or three security pele at all times. another one is why do you allow people to travel on our dime, example martha reese traveling for her mo-town stuff. and finally why don't you fire city councilmembers when they act like kids in the public? guest: the city council is a

part i don't control. there are things that happened in our city council that none of us like. and the key as we look at going to the polls in august and the primary. going to the polls and the general, there seems to be a feeling in the air with the people in detroit they want change. i think we will see massive change in turnover in city government. they are the legislative part of city government, and they have had as many problems and endured as the mayor's office. we sowhave had the change in t mayor's office and i think we will see the same changes in city and county. host: mayor, as we close, what will future generations call detroit? guest: i think it will always be the motor city, because we are not going to be as heavily involved in manufacturing as we

once were. when you look at the brain power and in our area in terms of higher education, most of the car companies around the world still have their engineering people here . all the technical capabilities here in the city of detroit, i think will remain here. we won't see a lot of the plant activity we have seen in the past. that's starting to move south and offshore. but in terms of the brain power, it's still here in the city of detroit. and i think it will be looked [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> up next, former treasury secretary henry paulson testified at a hearing about the bank of america her -- bank of

america/merrill lynch a merger. robert gates talks about security policy. >> on tomorrow morning's washington journal, we will discuss health care policy with timothy murphy who is working on the house health care bill. the labor department chief economist will talk about the obama administration's effort to create more jobs. of a good washington journal" begin the 7:00 eastern. >> former treasury secretary henry paulson simplified on capitol hill above the government's role in masters' bank of america/merrill lynch a merger. members of congress have accused him of improperly threatening bank of america's ceo to facilitate the merger. this hearing oversight and government reform committee is 3

for five hours. >> today we are continuing our investigations. when we held our first hearing on this murder, i called it a shotgun wedding. now it looks like a marriage of convenience. ken lewis got what he wanted and the treasury and the fed got what they wanted. all of this happened against a backdrop of unchecked government policy. there is no transparent -- transparency or accountability. can those refuse to mid to have manipulated the system to his

benefit. he started this bill when he made the first phone call to mr. paulson. they got the government involved. it got the treasury to cough up 200 billion dollars of taxpayers' money to help finance this merger. he never had to disclose $12 billion in merrill lynch to investors until it was over. he never had to as the shareholders to reconsider the transaction. in the end, mr. lewis got everything he wanted. mr. paulson and mr. bernanke also got what they wanted out of this marriage. they got an uninterrupted murder that they believe helped -- merger is that they believe help stabilize the market. while all of this was going on,

the american people were kept in the dark. there was no oversight to determine whether this arrangement made sense. this is unacceptable and must be prevented from happening in the future. that is being said, significant issues need to be resolved today. was bank of america really forced to go through with the deal or was this just an old fashioned brooklyn shake down? -- did ken lewis ran to back out of the deal in order to squeeze more money out of the garment? did mr. paulson believe that can lewis had demonstrated a colossal lack of judgment? why did he and mr. bernanke leaves louis in charge of bank of america?

did officials tell ken lewis to keep quiet about the escalating losses at merrill lynch in the government's commitment to provide billions in funding? the congress make a mistake by giving broad authority to the treasury and fed in 2008 when the tarp fund program was created? should congress have required more accountability and checks and balances in the operation of the tarp fund? perhaps mr. paulson will help us shed some further light on this transaction and help us to answer these questions. i look forward to his testimony this morning. i now yield five minutes to our ranking member of the committee, mr. darrow, for his opening statement. >> thank you. thank you for being a full

partner. i would ask unanimous consent that the gentlemen from florida and new jersey bailout to sit in on the panel pursuant to our rules and ask questions. [no audio] >> i do not think it is going in. >> thank you. mr. chairman, after reading paulson as testimony, it is clear the most of the bases? related to this event in december of last year are no longer in question. secretary paulson has confirmed that he did tell ken lewis that if the bank of america exercised

that clause and later needed assistance than management would or could be fired. this is not in debate. candor and clarity that he is bringing to us today is refreshing and helpful. the fact that the secretary does not believe it is inappropriate, perhaps we should look at in light of the times. just as revisionists have rewritten what we are doing after 2001 to protect the homeland, we are already beginning to question whether means use for the disposal of the fed and treasury were inappropriate now that a global financial meltdown has been averted. in fairness, just like in the cold war, we would -- if the soviets can over the border, we would have to come as they are. what we had at this crisis was a

secretary of treasury relatively new on the job, a fed chairman relatively new, all of whom were being told here is what is happening on a daily basis. they came to us with a plan that i voted against. it was to buy toxic assets for $700 billion. when they went back and started looking at how to execute after receiving it, it became clear that it was more complex. it was more nuanced. the need for not for toxic asset purchases and it might not be in the taxpayers best interests. although there will be some things that i approve of and disapprove of, today we must consider with the last witness the situation that existed at that time, one in which the president had lobbied heavily for money ies but without a book

saying how to get through these times. wall street would say that the end justifies the means. here in washington, we are monday morning quarterbacks. they say that if we have to play again next sunday, how do we do better? what can we learn from what happened on the gridiron on sunday? that is our job here today. we have to ask some serious questions and use an expert witness as part of the process. we have to ask what would you do differently if he had to do it over again? what should we do in order to glean the causes, events, solutions, and what regulatory changes will be necessary if we are be prepared to not have it happen again or provide the

transparency, accountability, and rule of law the next time that may have been lacking in this once in a century event. and a bipartisan basis, i am thrilled that we are bringing to a close this report hearing process, because i believe it is helpful and will continue to be helpful not just as oversight, but as a partner in the necessary reform. just yesterday, all on the house side, all of the commissioners that you and i worked on together were named. that is the beginning of what could be up to an 18 month process in which i believe the both of us will be working together to ensure that our reforms bit future possible challenges. >> thank you very much. >> this hearing has been conducted with domestic policy

subcommittees'. i now yield five minutes for opening statements of the subcommittee. >> i do not think the question facing us today is whether or not this is a moment for monday morning quarterbacks. the question is whether taxpayers should have purchased the bank of america franchise. mr. paulson's testimony -- is an undisputed fact that he told bankamerica's can lewis that the government might remove him and his board of directors if the bank of america abandon its deal to acquire merrill lynch. it required a judgment call.

it was arguably on wise but lawful action, which he viewed as a potential threat to the financial system. nothing in his paul -- testimony today justifies the government's decision to ignore evidence that bank of america withheld information from its shareholder about mounting losses at merrill lynch before the crucial shareholder vote on december 5. it was a potentially illegal act. i see no justification for the government to override recommendations of professional staff at the fed. this committee's investigation and to previous meetings. hearings every bill that the government had concluded that mr. lewis's management of bank of america was seriously

deficient. it was possibly in legal jeopardy top staff had knew about accelerating losses at merrill lynch before the shareholder vote to ratify the merger. he did not provide information to shareholders. the top lawyer determined that the management team were in violation of security laws for withholding material information. top staff had to turn that mr. lewis and his management team have failed to do due diligence and more not up to the task of identifying the problems in which they found themselves in late 2008. top staff of the fed were pressing for a number of new requirements on bank of america as conditions of any federal bailout in order to remedy the division management a percy. if you look at the screen, you

will see the supporting documents our investigation has revealed in an e-mail from a senior advisor, "there are clear signs in the data we have that the deterioration at merrill lynch has been observed elite under way over the entire quarter, albeit picking up sufficiently over mid december." next live. "the severity of ,mer's losses only came to light is problematic in imply substantial deficiency in the diligence carried out in defense of and subsequent to the acquisition." and quoted these were clearly shown in merrill lynch's internal risk management report that bac reviewed."

"the potential for losses and other risk exposures." "it should have been reasonably well understood, particularly at bac itself is also active in both these products." next slide please. "lewis should have been aware at of the problems. as early as november, and not caught by surprise. that could cause other problems for him around disclosures that bank of america made for the shareholder vote." and excite, please. from another e-mail, "a different question that is not seem to be the one lewis is speaking of is related to

disclosure. management may be disclosed if it does not properly disclose the information that this material to investor. his potential liability here will be whether he knew the magnitude of being mi, losses when the bank of america made its disclosures." next slide please. "bank of america should expect to be required to add more interested plea deal and the involvement by the u.s. government in the selection." and the final slide. from an e-mail from eric rosenberg, "going forward, i am concerned that we too quickly moved to a rich strategy, particularly if we believe management is a significant part

of the problem and it didn't have a good grasp of the extent of the problems." i think is instructed to look at the -- instructed to look at the predict instructive -- instructive to look at the problem. not every national government faced with troubled and systematically banks the the same way. the u.k. dismiss top corporate management at royal bank of scotland upon rescuing the company. even in the u.s., general motors's top executive was pushed aside as a condition of federal support. in the united states, the management of systemically good banks battling kept their jobs,

they received billions of taxpayer dollars to help plug the holes in their balance sheets. but regard to the government intervention, it was successful. manny diaz ->> lee summarize? what i will summarize. not a single ceo of this extended lay successful bank was removed from this job. nor has a single ceo of a systemically bank -- the biggest bankers have received a free ride at the taxpayers' expense. in choosing to bailout of bank of america without authority,

the government sent a signal to the management of all systemically significant things that their mistakes will be treated differently and more densely by regulators than those committed by managers amid signs the banks. it will prove to be dangerously destabilizing signal that we will deeply regret. >> we on this side have not received any documents that were displayed. can we get copies of each of those? >> without objection. >> i now deal to the gentlemen from ohio again. he is the ranking member of domestic policy subcommittee. >> i would like to thank secretary paulson for coming before the committee.

and if we all look forward to his testimony. paula 2008 was a watershed time for our economy. million americans lost jobs and their credit was tightened. the approach taken by the federal government was dangerous and i think many americans would argue has not helped. federal bailout in stimulus packages are transforming our free market economy into a political the government now selects the winners and losers. it is merely a symptom of the -- the federal government into the everyday affairs american businesses and families. should anyone be surprised that the government administered the program. they have behaved in a way that is unprecedented. they have these threats and deception to impose growing command over our economy. with the increasing isolation

from everything from banks to car companies, this is all i did it -- economy is deteriorating further. the american people are saying enough is enough. the american people what we want answers. i look forward to hearing about his role. >> thank you very much for your statement. we turn now to our witness, henry paulson. he served as secretary of the treasury from 2006-2009, at january 2009. he previously served as the chairman and ceo of goldman sachs. it is policy that we swear our witnesses in. >> ok. thank you. what do you solemnly swear to

tell the truth, and the whole truth, and nothing but the truce? >> yes. >> he may be seated. >> distinguished members of the committee, i served as secretary of the treasury from july 2006- january 2009. during my tenure, the world experience of financial crisis was unprecedented in our lifetime. the crisis presented a relentless series of novels challenges that required swift and innovative responses. had the crisis of 2008 been let to one fold without strong federal reaction and intervention, the world 2009 would look very different from

the world we live in today. many more americans will be without their homes, their jobs, and their businesses, their savings, their way of life. the crisis last fall friend to disrupt our financial system, not just the institutions that had high credit losses, but all financial firms. as liquidity dried up, and the continued collapse of financial institutions would have meant that firms across industries would have seen a massive curtailment to access needed to purchase supplies and pay employees. payrolls would turned into millions of layoffs. this would have meant an even greater retreat of consumer spending.

it would have been extremely difficult to break the momentum of this summer spiral. now the the financial system has stabilized, we should take the time to learn the lessons of the past. in the middle of a rapidly changing crisis, our responses were not perfect, but i'm confident that they were substantially correct and that they save us from great peril. this hearing is about bank of america. in my testimony, i lay out the series of events surrounding these acquisitions. there are three issues that are appropriate to address at the outset of this hearing. first, some have implied that i and other officials allowed concerned about systemic risk to outweigh concerns about potential harm. that simply did not happen.

from my view and other officials, the interests of the nation and bank of america were aligned with respect to closing of a merrill lynch transaction. some have suggested that there is something inappropriate about my conversation with mr. lewis in which i mentioned the possibility that the federal reserve could remove management' if they invoked the laws. i believe it was appropriate for me to explain to mr. lewis that the government was supportive of bankamerica and that they felt very strongly that the bank of america exercise because, it would show a kossel lack of judgment and would jeopardize bank of america, md., and the financial system. it was also a program for me to remind him that under such circumstances, the fed could invoke the authority to remove management.

i intended my message to reinforce the strong view that have been expressed by the fed and which were shared by the treasury that it would be unthinkable that the bank of america take the structure of action. third, the suggestion has been made that i discourage mr. lewis from making required disclosures to the public market about losses at maryland.

c-spa[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> did you describe the conversation that you had with ken lewis? >> my conversation on what day? >> weber day that it was,

described these conversations? what's the conversation with ken lowe was on the 31st? >> you spoke to him in december. he said he was considering mac and you said that this was bad. and he came back -- [inaudible] bad >> your microphone is off. >> can you hear me? >> did you keep tim geithner informed of this? >> in a different way. bernanke was a major decision maker and once tim geithner was a secretary of treasure, we

wanted a very smooth transition. i kept him posted on many different things. >> i thank the gentleman. >> welcome. i thank you for your patience today, given the schedule. i would like to go back and maybe i can follow up on the question, on the understanding that twice, mr. lewis threatened to use this because they had discovered a $12 billion problem in the merrill lynch deal. >> what i remembered was $18 billion before the taxes, then 22 billion, but my numbers may be wrong. >> but they talked about the

possibility of invoking the spirit and your reaction was negative, why was this? >> this was based on that they were experienced lawyers. i have never heard of this elsewhere, that there was a legally binding contract, and it would not have been valid in this situation. the shareholders had this in both companies. >> but that is a legal matter -- a little matter not normally involved with the secretary of treasury. why would you care if he was acting on legal misinformation? >> i normally would not care, but if you have a situation where a company does something

like this, there is uncertainty and fear and this could do great damage for that company, and to the whole system. >> you were worried on the impact of and very fragile system. and also the impact on the biggest bank. >> given that concern, and anytime around december 2008, did you have any conversation that could be implied as promising and exchange for them to back off of the threat or going public with this, in exchange for the silence -- the silence or the proceeding, that there would be finding available

to mr. lewis. >> we definitely had conversations. but no matter what they did, i felt a responsibility, i know that bernanke bell and responsibility, to keep the financial system from collapsing. this was not a situation where we were going to do them a big favor. we were doing this for the american people. it just so happened that there was interest because this would not have been good for the insurance companies either. >> mr. lewis construe this as almost a threat by you and ben bernanke, that if you did not take the federal money, he would be fired. that is a far cry from how you characterize this, as a conflict

of interest. >> there are two different things. the conflict of interest was what i said. we certainly did not want bank of america to be unstable. in terms of the communication with them, i have been very direct. i was very direct and i intended to give a clear message and i am not characterizing this as a threat and lewis did not characterize this as a threat. i did explain the powers of the fed. in terms of the interest, this is an obvious thing. if you follow what has been laid out, you either except the qlogic or you do not.

some people say that there was no crisis and nothing would have happened, nothing would happen to the financial system. i cannot satisfy these people. >> i understand where you and the federal reserve chairman are coming from but we are trying to understand -- i hope i have the opportunity to return for some questions regarding the conditions of the agreement to go forward with the funding. >> thank you. once thank you. following up on his questions about the imbibe -- involvement of tim geithner, once he was nominated you kept him informed. but we have notes from the chief financial officer for bank of america, with a conversation

that you had with willis and yourself. in those documents, he says, if you do this, you are responsible. tim geithner agrees. did you ever invoke the name of tim geithner or suggest that he was on board with your view on this, to apply the additional pressure to bank of america? >> i have no memory of that whatsoever. >> you do not remember mentioning tim geithner in the conversation? >> those are his notes, someone will have to ask him. i do not remember talking to joe price. as i have said, i've posted tim

geithner and i did not look at him as a decision maker. i just do not have a memory of this context. >> you have never used them to your recollection for the additional pressure? website not remember that. >> there seems to be a lot of confusion and arguing over the semantics over whether or not there was a threat. you have been very clear in your earlier testimony that if they went forward with invoking this, you have attempted to remove him from his position. >> i did not have the authority to do that. what i said to him, if he did something so irresponsible --

clients and that was the response? what's five believe that the fed could do that. >> and you clarify that you thought this would be irresponsible. >> that is clear. maybe threat is not the right word, maybe he felt pressure. would that be a fair term? clefs i will tell you what i said and you characterize this. >> i would like you to respond to the testimony of ben bernanke. he was asked if there were threats -- you do not like this term, or if people felt threatened to go through with these ideas, we asked them if it was okay because it was working and he said it would not be right for them to feel pressure. given the acknowledgement that threatening to fire the

management of bank of america to get them to go through with the merger, are you prepared to take responsibility for this statement? >> i take responsibility, and what i said, i believe that logically followed from the chain of events, that is what a regulator should be doing. and i think that when bernanke testified, last month, he said that if somebody made a decision that harmed the company they deserve to be held accountable. that is certainly what i was trying to communicate to lewis. >> you said you took issue with the reason for bank of america

taking this. you see that he relied on the legal basis for the legal staff, for their view on this as your justification. do you know the names of the staff? >> pfeifer dissipated in a number of phone calls, where i heard the legal staff, and i do know some of the people. >> do you know if they had background in mergers and acquisitions? what's in not know the specific experience. >> there's a difference between being an expense it -- an experienced lawyer -- >> i will tell you one other thing. i have participated in deals and

markets for 32 years. when i hear a lawyers say, to a company, what is your legal justification, after two shareholder votes, with something structured this way -- i am not getting very much back on the other side. as someone who has been around the markets, everything that i heard was with my instincts and judgments. >> were you aware that bank of america had invoked the mac? >> was this over the shareholder votes in the delaware company? >> the time as -- >> if they have the legal expertise to do this once, i would question why they would come forward and say that they could do this if they were wrong.

>> i have told you how i made my judgment, and that is how i made my judgment. >> thank you. >> the congresswoman from ohio. >> some say that the timing of what you call a financial crisis that is unprecedented was a calculated wall street scenario, and this had the seat and moral hazard. the call for the bailout of wall street access -- excess came six weeks before a national election in the government -- when in government is most abominable. what this deal than it was an unprecedented dumping of private sector losses on the u.s. taxpayer. history will show that the u.s. government and yourself knew

about the growing losses of wall street long before the bank of america merger, and the purchase of countrywide in january 2008 was another positioning of the private sector interests for what was the greatest help mary pass of all time, placing those losses on the next three generations. i want to know we were helping hand to you were not. there was a report that goldman sachs, posted the largest quarterly profit in the history, of 140 years, 3.4 billion. each employee will earn $770,000 this year, and unemployment is rising across the nation and for closers are surging, and lending is still constrained. it looks like some rich people

are partnering -- profiting handsomely. and i will tell you that those profits would resolve about one- quarter of the housing situation in ohio. since you were a group as the secretary of treasury in 2006, have you or any of your family had any financial connections to goldman sachs? >> no. >> what about bank of america? >> not that i know of. >> who was the first president that you served? >> richard nixon. >> who was the head of your staff? >> [unintelligible] let me ask you about the deals that is structured as treasury. in terms of the warrants that you structured, the return she provides that once coleman redeemed the shares, they have the option to purchase this

back at a fair market value, and a timing of their discretion. what did you draft a provision that allowed the borrower to determine when the taxpayers would receive the warrants? >> in terms of how this was structured, i am asserts that the deal with certain for all the others. >> what would you leave the taxpayer, by which you let them set the terms? >> i would say this, they will be very profitable for the taxpayer. >> if they can set the terms on when they will be redeemed, we will not give back what we deserve to get back. what's there is a process and this is not a process where they set the terms. >> the terms say that the timing

of their discretion -- could you check into that for me? >> the timing is one thing, the process is another. >> i do not know how you define your terms but it is clear that goldman sachs will determine when the taxpayers will get their money back. let me go to something else. this is about who you are helping hand to you are not. goldman sachs bought in 4 $5 billion. our taxpayers were forced to invest $10 billion in goldman sachs. warren buffett received 43.5 million options with 1.8 billion for his $5 billion gamble. the taxpayers got 9.5 million options with 500 million, one- fifth as much for their investment, he is being paid 10%

interest, taxpayers get 5% for the first five years, 9% for the second. he has a 10% premium, we have no premium rights. he got $5 billion for his investment, taxpayers got 4.9 billion or their $10 billion investment. al is this fair and why did warren buffett get a better deal than you got for the american taxpayer. >> there is a clear reason why. the capital to go into all the banks -- this was in the middle of a crisis. attractive capital was not available. the reason that we had to do this is because the capital was not available.

we were providing the capital, that was structured so the taxpayer would get the money back -- >> whenever gold and sets the terms. >> the banks put out the capital, and this is preferred stock. this was 5% initially so the taxpayer will get all the money back. 5% interest, and a number of firms have done well. you do not stop -- you do not stop a financial payment by putting capital and offering the capital to the banks, on the only terms that they are available in the middle of the crisis. we were moving quickly to put the capital of the major financial institutions that were systemically important. and i would ask for a number of

those institutions -- they have done well. >> they have done very well. >> this is something that you should all be pleased about. >> i wish that you got a better deal for the taxpayers, you certainly did for your former clients. >> if you look at what the taxpayer will make on these companies, -- the biggest advantage to the taxpayer, the biggest advantage to the taxpayer -- we did not have a collapse, we did not have double the number of foreclosures in ohio. >> there have been, you should come visit us and see the results. >> i know how bad it is, it could have been worse. >> her time has expired. collects you probably do not believe that there was a crisis.

>> it was a crisis of your making. >> your time has expired. we now recognize the gentleman from nebraska. >> thank you for joining us today. in your testimony you said that he would like congress to create a new regulatory framework to facilitate the rundown of an important institution. what do you envision? >> i think something similar to what has been suggested by the obama administration makes sense. there needs to be -- when there is a real risk -- this should not be done frivolously. there needs to be away to avoid

the normal bankruptcy process, and a regulatory body could come and, in the liability so that this does not provide a real danger to the public. and if we have a different regulatory regime, and this authority is structured properly, this will not be a situation where the institutions are too big to fail. >> what is the role that you see for the treasury and the fed? >> there have been a number of things that have been suggested. what we had suggested as part of the regulatory blueprint, was the fed playing a role of a regulator being able to look

across the whole economy, to look across to the capital markets and be able to access and information, and having the authority to act. in terms of the winding down -- if there is a potential failure, there needs to be a high bar and a determination, for the secretary of the treasury. by the chairman of the fed, and by the other regulators, that there is a true, systemic issue. this should not be easy to get over the bar, but when there is, the regulator needs all the power to handle this. >> given all the turmoil in the economy in the last year and the intervention of the government,

we now have the reality that 10 banks control about 50% of the deposited assets. is this a systemic risk? >> this makes me uncomfortable. >> so how would this new regulatory framework look at that potential situation? >> as i have said, i am say nothing now than i did not say when i was the treasury secretary. we put together a blueprint for greater consolidation of banking regulation, and i think that having greater consolidation and stronger regulation, coupled with the winding down of the powers, so that there are no

holding companies too big to fail, this is a meaningful way of doing this because in my judgment, regulation no matter how good will never be perfect. and you have to have a balance with the market discipline. we got to a level where we could not rely on the discipline because this would have taken down the system. to the extent of the infrastructure, this is fixed. there is the credit the fall swap and we have the winding down of the power, so they are not held hostage by the institutions that are too big to fail. there is the opportunity to get the right balance. >> we have changed the

statement to, to bid to succeed. i am asking you a question, because of the debatable actions -- i have heard your justifications, just looking ahead, can you say that we are in a situation where the actions that were taken to stabilize the economy has left us with more vulnerability because of this highly concentrated control of the financial system in hands of the few. >> i understand and when you look at the number of banks, there will be much more consolidation. i do understand your question. >> the gentleman's time has expired. congressman clay for five minutes. >> thank you for your candor and

hopefully we can continue in this vein. i have noted with great interest, of your evolution from a proponent of no government interference to a person who believes that government should have a role in the market. i find that in lightning and also contradictory at the same time. i have questions on why we have companies that are too big to fail -- i do not believe that. those that you obviously think are too big to fail -- what distinguishes them from other companies? while west lehman brothers allowed to fail and merrill lynch and bank of america were not and what were the

differences? what was the risk to the country in making the decision to rescue one of them and not the other? why assist goldman sachs and not lehman brothers? >> i went through this earlier, i will go through this again. at the time when lehman brothers was failing, we had no authority to put capital into lehman brothers. we were unsuccessful in finding a buyer. in the case of bear stearns, we had a buyer in j.p. morgan, and the government could assist them, the j.p. morgan provided the capital.

they wanted to guarantee the trading of. >> aig? >> this is another one that was different. it was perceived as a liquidity problem, but we had at the insurance company level, regulated insurance companies -- so the fed could solve the liquidity problem, by going against the insurance company assets, the market accepted this. lehman brothers had a capital problem and a liquidity problem, and we had been working with a group of industry resistance to help to finance a deal, to get a buyer. we were unsuccessful in getting this. and so that once we have the money in place, we had other tools, and there has been a lot

of confusion. people will say that the fed loaned money to lehman brothers after they failed. we made a loan, this was to facilitate a liquidation in the bankruptcy. a loan to lehman brothers by itself would not have taken care of the guarantee and would not have prevented a bankruptcy. after bear stearns, if you will get the record, you can see that bernanke and henry paulson each gave speeches where we said we did not have the authority to deal with the nonpaying institutions. your question is asked by many people. this is a complicated issue, --

>> let me tell you what my constituents are feeling. we gave aig $180 billion. because they were irresponsible, they were taking risks because they created these exotic products, and to enrich themselves. they were irresponsible. but yet they are rewarded through the tax dollars. when does it stop? and what is the punishment for their irresponsibility? >> i cannot tell you how much it pains me to be on the other side of this conversation -- conversation. i cannot tell you how angry i was, what i was there and the

management team came in, and this is -- you are absolutely right. but there was a situation, where we had an unregulated hedge fund, on top of the insurance companies. there was a payout on the regulatory system that never should have been allowed to happen. but it did happen and all that i can say is that he will never be able to explain that. we'll want to be in a situation where this can happen and can. all that i can say to you is that if the fed had not taken that action, given the size of aig, we would have had a financial system meltdown and the money that would have been lost in savings plans, the money

destroyed in this country would have been would have been tragic. but now, there is a situation where the government is the owner, we have to be careful that we do not draw a line between trying to punish them and shooting ourselves in the foot. right now we should be wanting aig to do well. >> are you sure that i have five minutes? >> euan 7 minutes. -- you had seven minutes. >> we are happy that you have a chance to participate. without objection. >> i hear your pain when you say it is painful to be on that side of the table, but it is true

that goldman sachs benefited from the aig bailout, with $13 billion and they were the largest recipient of public funding, creating the collateral that obligation for the basis of the current crisis, and we knew where the ceo, you were an active part of the business. my problem is that when you say you are feeling pain for aig, you decided that instead of buying the stocks of loans, you will give money for these -- to these people. how can you tell us about your pain? you came here -- you have this bill that you wanted $750 billion. and after you got the approval you changed this, you started getting money to these top 15

institutions, when all of these people with the loans, you could have worked out an equity plan across the country to help the people are having -- who are having their homes foreclosed on. you are helping aig and bank of america, bankrupting lehman brothers, don't you think that you should have recused yourself and said i really feel, i should not be making these decisions to make lehman brothers go bankrupt, i should recuse myself. and you say you feel the pain of aig is just outrageous. >> i would like to respond. i have the time. let me say one other thing. >> old microphone up. >> let me say one last thing. you say that you support the obama administration giving more regulatory power.

but the fed -- tim geithner was on board. they were dealing with these institutions. and we have this person who came up and he was on the board of goldman sachs. he did not last very long, because of a conflict of interest. there is some much conflict of interest there -- do you not realize that you are helping people who you are associated with, and you should be recusing yourself? >> let me make several comments? -- let me make several comments. i came to congress and i asked for the authority to purchase liquid assets. >> in 10 days you changed your opinion. >> we changed because the situation changed dramatically. if you look at what happened during those 10 days and what happened around the world, this

changed dramatically. >> i do not want you to use all of my time. >> i left goldman sachs, i sold my shares in goldman sachs. >> >> if you come into the administration to sell your assets -- you had a $200 million profit and did not pay any tax. >> you did not pay a profit -- you do not pay profit when someone makes you sell your assets. the next thing that i would say to you, very clearly, is that i behaved with -- >> u.s. lehman brothers to go into bankruptcy but you did not put their stearns in

bankruptcy, is there some time when you have to say, i have a conflict of interest. you do not feel any ethics on this thing at all? >> i operated very consistently, with the guidelines and i had as the secretary of the treasury. and when it became -- clear, we had some significant issues with goldman sachs, -- >> why did she not recuse yourself? >> it would have been very wrong for me to do this, because when we had -- >> who is in charge of the ethics agreement? >> we have the office of ethics and the white house ethics office. >> you got this from the white

house? >> the gentleman's time has expired. >> i wish for consent to have my opening statement as part of the record. >> without objection. the congresswoman from florida? >> i want to thank you for being here, and a few minutes ago we talked about an institution that he fought would be able to deal with the regulatory activities, how do you feel about the regulatory proposals put forward by president obama and congress? >> that is a broad, general question. >> when i was the secretary, i

put forward a number of regulatory proposals. and there are a number of things that have been put forward that i am very pleased about. the authorities for the nonbanking institutions, and the idea for better stability regulation, and so -- there are positive things that have been put forward. >> if we send you the exact questions, will you put your response in writing, so that i can say that when we formed this new regulatory system, these are some of the things that you should consider. we are trying to unscramble wrynecks at this point. we must move forward and correct the system. this is the impact on the united

states but the rest of the world. we have to get this right. i cannot be convinced that this was not seen one year ago, and in trying to move on -- i want to reiterate what has happened on tuesday. it was reported that one month after repaying their $10 billion, goldman sachs would be posting a second quarter net profit of $3.44 billion. i am curious to hear your perspective on their success, despite the recession, giving your 26 years of experience at goldman sachs, and the unique role, that the former employees have played in economic policy,

considering that the last chairman of the federal reserve bank of new york, the head of the world bank, and the new york stock exchange and the former assistant secretary of treasury, responsible for this -- there were all former employees. why do you believe that goldman sachs has been able to bring in such profits despite the current economic conditions? >> i do not have an answer. i have not worked there in three years. i cannot explain what they are doing. what i can say -- i take some comfort and i think all of you should, that there are a number of financial institutions that are more profitable today, and it looks increasingly like the

government will be paid back with profits on a number of these plans. and it seems that the request to give you something in writing, i will work on that. i do not have a staff -- >> we will send you, in writing, what we would like to ask. and what you think you should have proposed. >> i will do my best to work on this. >> do you believe that goldman sachs has benefited from the economic crisis, and the destruction of some of their competitors like lehman brothers. wax i do not know the source of the profits, and i have no basis

to speculate. >> how was the determination made that institutions such as bear stearns and aig, and merrill lynch, should be saved through direct assistance or acquisitions, and lehman brothers would be allowed to fail. i am not clear on this. >> we did not have the leader -- the legal power to do something for lehman brothers. we could not put capital in, and there was no one to bind us, we were faced with the unfortunate circumstances. >> i will conclude, i just want to say -- if we have missed the

responsibilities of oversight -- i need to know when you consider in writing and we will put this in a letter to you. when you consider that the government could do more of. this committee -- under the former administration did not do the oversight or maybe we were looking the other way. i would like to hear what government could do so we are not in this situation again. i think this is worse than the depression of the 1930's. >> i yield to the gentleman from new jersey. >> thank you. let me make a comment on your comment about aig, with the gap in regard to coverage and authority and regulation -- we

have had a number of panels looking at this, and the bottom line is that this is not a gap in the authority, there were regulators in place but they have the authority and the personnel, but they just missed this. they were not looking in the right places. >> this may have been a gap in terms of capability. >> this is probably a good way to phrase this. >> one thing that you have said and others -- what we need here -- is resolution authority. this is what we need to answer her question going forward. here is a hypothetical question. we have the resolution of 40 before the aig situation. how would this be different if

you have the resolution and they were trying to move in, they were trying to wind this down in a quicker matter? and this would put a larger burden on the taxpayer. and you say we will do this over some time -- help me understand why any thing would be different if we had a winding down of this prior to the aig situation? >> with aig -- it was necessary to keep the current company, kept the current corporate structure, working within the legal framework. the one thing that is similar, the fed made a loan that will be

repaid. i do not know -- in terms of aig -- giving the fed support as they made this decision. but once the action was taken, i had no dealings. i think the fed would be better to answer the question in terms of what they are doing right now. >> i do know that you were not there after the fact. we need the winding down of authority. what would have been different in this situation? another is a new situation, it looks like they will not be able to get a bailout.

have we already set up the situation, that you create the conundrum of them, they say that they will only bailout these entities, and they just do not fall into these categories. so you have a disservice to the taxpayer, that you will encourage the companies in the future, when i get in the situation -- i should do this -- is that the problem with the proposal? >> i do not have all the facts in terms of what has happened. the regulators made this a bank holding company, with a regulatory recommendation to the treasury. we funded this program and i do not know what has happened.

i understand the issue that you have lined out -- the only answer is -- we have to exit from these programs as soon as we can. >> my fear is -- under the administration's proposal -- this is basically increasing the situation going forward. we say that this entity is too big to fail -- and then -- the cit's say that we want to get in this in the future. and that is the flaw in the proposal, this will perpetuate the problem. >> i do agree, that we do not want to move to a situation in

the country, where certain organizations are too big to fail, and everyone else can fail. we want to be in a situation where nobody is too big to fail. i understand what you are talking about. >> i indicated that we would get him out, he has an airplane to catch. i would like to give the closing statement to ranking member issa. >> i look forward it to the oversight and the reform, i would like to consolidate the questions for the minority and the majority, so that we can not overburden them and can get an answer. i personally want to thank you

as a private citizen for giving us so much time and insight into what happened at this difficult time. there are unanswered questions, and there are questions that we will never know. we will never know if merrill lynch stayed on their own, if they would be a viable concern. with the plans envisioned by the treasury and the fed in case they backed out, would they have worked? we will never know. i want to thank you for your attempt to make it so that we would not have to do this. i am a critic of expanding the role of the fed beyond the monetary supply, and giving them a direct role in the wrist

questions. i believe the fed has a primary obligation as an economic modeling organization. you have a long history in understanding a good merger and a bad merger. this is not a talent that we expect to see. as we expect to go forward it to find the right model in case something like this happens, and the right model is to see this before happens, i hope that you will continue to be a resource. i hope that we have an obligation to make certain that we get this right so we never have to do this again. thank you for your continued partnership on a bipartisan basis and your help to make certain that everyone got their questions in. with that, i will yield back and

think the chairman. >> thank you for your statement. let me thank you for coming, but there are some unanswered questions. maybe you could give this to us in writing. when they look at the books at merrill lynch, they realized there was a $9 billion shortfall according to mr. lewis. and then there was a $12 billion shortfall. my question to you, and i hope that you'll get this back to me in writing. how did it get from 12 billion to 20 billion. >> that is one i cannot give you in writing, i do not know. what i heard was a call with the losses were 18 billion, there

are 22 billion and what i said to people, this takes my breath away. when the market here is that -- all that i could say to you is, at the end of december -- and november were the worst months in the marketplace. this was the worst month for the economy, if you look at what was happening economically, this was the worst in terms of the credit and the bank losses. when i was looking at this i was not surprised that this could have happened so quickly, but i do not have an explanation. you have to get this from merrill lynch. >> i can see this if we're talking about millions. we are talking about billions. >> that was my reaction.

i saw things i had never seen before. so what was going on in the marketplace at that time, what bank of america explain to me was, the product that they had in inventory, there was an eroding in the value. but i do not know. i heard about this for the first time on the 17th. >> let me finish by saying that during the height of the financial crisis, there were major decisions made about who would live, and who was going to die. aig was saved, there stearns was sold off, bank of america received billions, nine big banks were forced to take

billions of dollars they did not ask for. this was decided behind closed doors, with no oversight. bank of america and merrill lynch illustrate the dangers of concentrating enormous power in two individuals. when we turn over complete authority to the treasury department or the fed, with no accountability and no checks and balances, this is what you get. commitments involving billions of dollars, seemingly arbitrary decision making and -- he has stated that the regulatory agencies -- the fcc -- ftc and the fdic are consulted and it is clear that we need to hear next

from the former chairman of the sec, and from the chair person of the fdic, to understand the extent of their participation. i intend to schedule a hearing for this purpose before the august recess. there are some questions, and if we are going to reform the financial system we will need answers. thank you for taking the time to come here, and i hope that you will become a resource and be able to help us to unfold and get through this mess, and we will be able to come back stronger than ever before. thank you so much for your testimony. >> thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]