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The Bush administration has left office but not quite left the spotlight. Some lawmakers want a better idea what the administration did and why. And that's how former Treasury Secretary Henry Paulson found himself before Congress yesterday. Lawmakers asked him about a deal made at the height of the financial crisis. Paulson was still in office when Bank of America agreed to buy the troubled financial firm Merrill Lynch. That deal has faced criticism ever since, especially for the government's unusual role in it.
NPR's Yuki Noguchi reports.
YUKI NOGUCHI: Most of the grilling went like this. Did Paulson pressure Bank of America CEO Ken Lewis to go ahead with the Merrill Lynch merger? Did Paulson threaten to get Lewis fired if he backed out? And were Bank of America shareholders hurt because the government forced the union in order to avoid another bank failure? In this, Paulson, who served under the Bush administration, got little sympathy, even from his own party. Here's Ohio Republican Jim Jordan.
Representative JIM JORDAN (Republican, Ohio): As I look at this, I think as most look at this, that they see a clear pattern of deception and intimidation. I don't think there's any one in this room who doesn't believe that you guys intimidated Mr. Lewis.
NOGUCHI: And then Indiana Republican Dan Burton.
Representative DAN BURTON (Republican, Indiana): You know, you're a very smart man. I don't think anybody is buying what you're saying right now.
NOGUCHI: But Paulson repeatedly, sometimes angrily, insisted he'd done nothing wrong.
Mr. HENRY PAULSON (Former Secretary of Treasury): You keep putting words in my mouth. I've now told you three times and told the committee repeatedly that of course I told Lewis that we would - the Fed had the authority and could replace Lewis and the board.
NOGUCHI: Paulson said he believes Lewis lacked the legal authority to renege on the deal. He reminded the committee how tenuous the financial system was at the time and that canceling the deal would've jeopardized both firms and undermine the economy even more. But while most of the questioning centered on the specifics of the backroom negotiations, the hearing itself became a proxy for something much broader, namely for questioning the government's instincts and reacting to a fast-moving financial crisis. To listen to members of the House Oversight Committee yesterday was to hear a litany of complaints about how Paulson and Federal Reserve Chairman Ben Bernanke should've done more or less or acted differently in handling the crisis.
Some criticized Paulson for asking Congress for a huge fund to buy toxic bank assets, only to then invest most of that money in troubled banks. Democratic Congressman Stephen Lynch of Massachusetts accused Paulson of a bait and switch.
Representative STEPHEN LYNCH (Democrat, Massachusetts): I want to take $800 billion in taxpayer money. I want to give it to my pals in the nine biggest banks of America. How many votes do you think you would've got up here? And that's why - that why I believe you have misled Congress.
NOGUCHI: Paulson held firm, defending the calls he made at the time.
Mr. PAULSON: I was forced to make some decisions, which were very objectionable, but they were better than the alternative.
NOGUCHI: He said that without the unprecedented takeovers of companies like Fannie Mae, Freddie Mac and AIG, the economy would be been much worse off today. There would be more layoffs, foreclosures, bankruptcies and investor losses.
Mr. PAULSON: As the situation began to crumble all around the world and it was so clear we had to move quickly, we needed to change gears.
Professor KENT SMETTERS (The Wharton School, University of Pennsylvania): This is clearly an era of panic.
NOGUCHI: Kent Smetters is an associate professor at the Wharton School. He says looking back, the main problem wasn't how Paulson and Bernanke handled the bailouts but that they did them at all.
Prof. SMETTERS: We're going to talk about bailing out these - some of these institutions and figure out how to unwind them for the next five to 10 years.
NOGUCHI: Paulson himself admitted that now the key question is how to unwind the government from its private investments, but that even with hindsight he had little choice but to do what he did last year. Committee chair Edolphus Towns said he's still troubled by what happened in the Bank of America/Merrill Lynch deal.
Representative EDOLPHUS TOWNS (Democrat, New York): There is some unanswered questions here. If we're going to reform our financial system, I think we need to have the answers to these questions.
NOGUCHI: The next series of hearings, he said, would come after the August recess.
Yuki Noguchi, NPR News, Washington.
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