Generally it’s not fair to point a finger and say “told you so”–but in the case of the emerging story of how the government forced Bank of America to buy Merrill Lynch against its wishes (which broke last week), it seems pretty appropriate. From the WSJ:
“The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It’s a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse.
In the name of containing “systemic risk,” our regulators spread it. In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders. And in the name of restoring financial confidence, they have so mistreated Bank of America that bank executives everywhere have concluded that neither Treasury nor the Federal Reserve can be trusted.
Mr. Lewis has told investigators for New York Attorney General Andrew Cuomo that in December Mr. Paulson threatened him not to cancel a deal to buy Merrill Lynch. BofA had discovered billions of dollars in undisclosed Merrill losses, and Mr. Lewis was considering invoking his rights under a material adverse condition clause to kill the merger. But Washington decided that America’s financial system couldn’t withstand a Merrill failure, and that BofA had to risk its own solvency to save it. So then-Treasury Secretary Paulson, who says he was acting at the direction of Federal Reserve Chairman Bernanke, told Mr. Lewis that the feds would fire him and his board if they didn’t complete the deal.”
Little commentary is needed on this point. We’ve also heard stories of Paulson forcing banks to take bailout money so that one bank wouldn’t look stronger than another bank. We’ve seen President Obama follow through on a threat and fire the head of GM. The better business models of Toyota and Honda have watched the feds–Lady Liberty, the Beacon of Hope–betray their belief in America as a good place to do business. And we are watching banks swarm to give back the government money intended to help them, but in a bait-and-switch move, is being used to tightly control them.
This is the problem of government interventions. That which seems to be the best interest of the country, often is not. There is not enough knowledge anywhere to guide the whole trillions in the market. That is why we believe in a free market guiding itself by an invisible hand. And we’ve been saying it for a while now.
Rest of the WSJ story here.