Paulson Admits to Pressuring Lewis on Merrill Lynch

This is not exactly a bombshell, but like a parent admitting to an 9 year-old that Santa is not real, former Treasury Secretary Paulson admitted yesterday to pressuring Bank of America CEO Ken Lewis into buying Merrill Lynch. From the AP:

In testimony Thursday before the House Oversight and Government Reform Committee, Paulson said he told Bank of America Corp. CEO Kenneth Lewis that the Federal Reserve could fire him if he backed out on the deal.
Paulson said that had the deal collapsed, it would have hurt the bank’s stockholders as well as the broader financial system. The government ultimately gave $20 billion to the bank to blunt losses tied to the acquisition.

It’ll be nice to not have to talk about this couched in speculative language. It is also nice to have another opportunity to point out the consequences of government intervention in the financial markets. BofA knew that buying Merrill would be detrimental to their business, and have really, really struggled as a zombie firm this year. It’s not that BofA would have been fine if this didn’t happen, but their return to solvency has been significantly hindered, as evidenced by the stress test results for the bank.