convenience here in lewis got what he wanted and the treasury and the feds got what they wanted all of this happen against a backdrop on check government power with no transparency or accountability ken lewis appears to have manipulated the accountable system to his benefit he started this bailout in motion when he made the first phone call to mr paulson that got the government involved and got the treasury to cough up twenty billion dollars of taxpayers money to help finance his merger he never had to disclose twelve billion in maryland losses to investors until it was over he never had to ask the shareholders to reconsider the transaction and in mr lewis got every thing he wanted mr paulson and mr bernanke he also got what they wanted out of this marriage they got an uninterrupted merger that they believe help to stabilize the market the problem is that while all of this was going on the american people and vestas and the congress were kept in the dark there was no oversight to determine whether this arrangement made sense in my view this is unacceptable and must be prevented from happening in the future that being said significant issues need to be resolved today was bank of america really forced to go through with the deal all was this just an old fashioned brooklyn shakedown began louis threaten to back out of the deal in order to squeeze more money out of the federal government mr possum believe that can the had demonstrated a colossal lack of judgment why did he and mr bernanke leave lewis in charge of bank of america did government officials tail ken lewis to keep quiet about the escalating losses at merrill lynch and the government's commitment to provide b s in federal funding did congress make a mistake in conferring broad fardy on the fed and treasury and october two thousand and eight when the talks on program was created should congress have required more accountability transparency and checks and balances in the operation of the top fun perhaps mr paulson will help to 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 you have five minutes to our ranking member of the full committee  for his opening statement thank you mr chairman and thank you for being a full partner in this process mr chairman i would ask unanimous consent that the gentleman from florida mr stearns and the gentleman from new jersey mr garrett be allowed to sit in on the panel pursuant to our rules and ask questions at the end of all other question or facts related to this event december of last year are no longer in question secretary paulson has confirmed that he did tell bank of america c e o ken lewis that if the bank of america exercised the ma clause and later needed assistance then matt management would or could depending on how you look at it be fired this is not in debate as a matter of fact the candor and clarity that the secretary 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 revisionist have rewritten what we were doing after two thousand and one to protect the homeland we are already beginning to question whether in fact means used at the disposal of the fed and the treasury and the f d i c were inappropriate appropriate now that of course  financial meltdown has been averted i think in fairness just like in the cold war had the soviets come over the czech border we would have had to come as we are and bring what we had what we had at the beginning of this crisis was in fact secretary of the treasury relatively new on the job a fed chairman relatively new on the job all of whom were being told here's what's happening on a daily basis do something about it they came to us with a plan a plan that i voted against a plan to buy toxic assets for some seven hundred billion dollars but when they went back and started looking at how to execute after receiving it it became clear that it was more complex that was more nuanced that the needs were not necessarily for toxic asset purchases and that it might not be in the taxpayers best interest so although there will be some things that i approve of and some that i disapprove of i think today mr chairman we have to consider with this last witness the sit to asian that existed at that time one in which the president had lobbied heavily for moneys but without anyone having a book written on how you get through these times wall street perhaps would say that the end justifies the means we have in fact been saved here in washington we're monday morning quarterbacks monday morning quarterbacks say in fact 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 the chairman that's 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 he do differently if he had it to do over again he may or may not be able to answer it what should we do in order to glean the causes the events the solutions and in fact what regulatory changes will be necessary or at least considered if we are to be prepared to either not have it happen again or as the chairman said provide the transparency accountability predictability and rule of law the next time that may have been lacking in this once in a century a vent so mr chairman on a bipartisan basis i am thrilled that we are bringing to a close this three part hearing process because i believe it's been is helpful and will continue to be helpful not just as oversight but as a partner in the necessary reform mr chairman i might take note that just yesterday all of the on the house side at least all of the commissioners for the nine eleven style financial commission that you and i worked on together were named that's the beginning of what could be up to an eighteen month process in which i believe that both of us and all the members of our committee will be working together to ensure that we are reforms fit future possible challenges i thank the chairman and yield back thank you very much nice of them california this  is being conducted jointly with the domestic policy subcommittee and now you have five minutes opening statement to the chairman of that subcommittee congressman because in its hi thank you very much mr chairman i don't think the question facing us today with all due respect to my friend from california is whether or not this is a moment for monday morning quarterbacks of the question is whether taxpayers should have purchased the bank of america franchise now in this or paulson's testimony today it's on it's an undisputed fact that then secretary paulson told bank of america's ken lewis that the government might remove him and his board of directors bank of america bannon it's d o to acquire merrill lynch it requires a judgment call to decide if secretary paulson was being justifiably tof in response to bank of america's consideration of invoking the material adverse change clause in its merger contract and arguably unwise but lawful action which he viewed as a potential threat to the financial system at a moment of crisis nothing in secretary paulson's testimony today justifies the government's decision to ignore evidence that bank of america withheld information from its shareholders about mounting losses at merrill lynch before the crucial shareholder vote on december fifth a potentially illegal act i've seen no justification for the government to override recommendations of professional staff at the fed and the president of a regional federal reserve bank for greater accountability of bank of america's top executives yet sadly that is precisely what to paulson and mr bernanke he did this committee's investigation and two previous hearings have revealed that the government had concluded that mr lewis's management of bank of america was seriously deficient and possibly in legal jeopardy top staff at the fed and treasury had determined that mr lewis knew about accelerating losses at merrill lynch before the shareholder vote to ratify the merger but he did not provide that information to shareholders the top lawyer at the fed had determined that mr lewis and his management team were possibly in violation of securities laws for withholding material information from shareholders top professional staff at the fed had determined that mr lewis and his management team had failed to do due diligence in acquiring merrill lynch and were not up to the task of identifying and solving the problems in which they found themselves in late two thousand and eight top staff at the fed and even the presidents of a regional federal reserve bank were pressing for a number of new requirements on bank of america as conditions of any federal bailout in order to remedy the deficient management they perceived if you look at the screen appreciative staff we put that up you will see the supporting documents our investigation has revealed in an e mail from a senior advisor at the federal reserve to  there are clear signs in the data we have that the detour your ration at merrill lynch has been observably underway over the entire quarter albeit picking up significantly around mid november unquote next slide please from a restricted federal reserve analysis of bank of america merrill lynch merger quote be a cd management's contention that only came to light is problematic and implies a substantial deficiency in the diligence carried out vance of and subsequent to the acquisition these were clearly shown and merrill lynch's internal risk management reports that b reviewed during their due diligence next slide please the potential for losses and other risk exposures cited by management including those coming from leverage loans and the trading in complex structured credit derivative sprouted derivatives products that's called correlation trading should also have been reasonably well understood particularly at b s e itself is also active in both these products next slide please from an e mail from the fed's general counsel the chairman bernanke lewis should have been aware of the problems at m l merrill lynch earlier because as early as mid november and not caught by surprise that could cause other problems for him around the disclosures bank of america made for the shareholder vote unquote next slide please for another e mail from the fed's general counsel the chairman bernanke has a different question quote a different question that doesn't seem to be the one lewis is is focused on is related to disclosure management may be exposed if it doesn't properly disclose information that is material to investors this potential liability here will be whether he knew or reasonably should have known the magnitude of the merrill lynch losses when bank of america made a cisco zhorzh to get the shareholder vote on a merrill lynch the own early november unquote next slide please an eerily excuse me in early december to get the shareholder vote on the merrill lynch deal on early december unquote next slide please from talking points prepared by top staff at the federal reserve quote bank of america should expect to be required to more intrusive review and involvement by the u s government in the selection of management of bank of america including the board of directors unquote and the final slide from an email from eric rosengren president abbas in federal reserve bank the chairman bernanke quote going forward i'm concerned if we too quickly move to a ringfence strategy particularly if we believe that existing management is significant source of the problem and that they do not have a good grasp of the extent of their problems and appropriate strategies to resolve them i think it's instructive to look at the example of the royal bank of scotland the u k replace senior management i would not want to discard this option prematurely unquote in spite of the evidence and recommendations from top staff secretary paulson and chairman bernanke he bailed out the merger of bank of america and merrill lynch without requiring replacement of bank of america's top management or board of directors or imposing any meaningful new requirements on bank of america's management not every national government face with troubled systematically significant banks behaved the same way the u k dismissed top corporate management at royal bank of scotland upon rescuing the company without impairing the bank's ability to operate even in the us general motors top executive was pushed aside as a condition of federal support but in the united states the of systemically significant banks such as bank of america not only kept their jobs they received billions in taxpayer dollars to help plug the holes in their balance sheets secretary paulson regards the government's intervention in financial markets as successful certainly tarp and the fed's many new lending facilities aid systematically significant banks and bought time for those banks but the lasting consummate summarize summarize right now the lasting contribution of this committee's investigation will be exposing nor has a single c e o of a systemically significant bank fully explain his role in creating the circumstance of the financial crisis the biggest most for bankers have essentially received a free ride at taxpayers expense in conclusion in choosing to bail out bank of america without also removing its top management for their failure to do due diligence and for withholding potentially material information from shareholders prior to the merger ratification vote the government sent a signal to the management of all systemically significant banks that their mistakes and their misdeeds will be treated differently and more gently by regulators and those committed by managers a mid sized and small sized banks over the coming months and years will prove to be a dangerously destabilizing signal that we will deeply regret  chairman as a point of order we on this side at least we have not received any of the documents that were displayed could we get copies of each of those we put on the board please be delighted to do so without objection and now you will to the gentleman from ohio who lost jobs while saving shrink and their credit tighten unfortunately the approach taken by the federal government i believe is dangerous and i think many americans would argue has not helped federal bailouts and federal stimulus packages are transforming our free market economy into a political economy the federal government now selects the winners and the losers the current issue before this committee is merely a symptom of the ever increasing reach of the federal government into the everyday affairs of american businesses and american families should any surprised by the way the federal government has administer the bailout program with the trillion dollars at their disposal little guidance and oversight we have seen treasury in the federal reserve behave in a way that can only be described as unprecedented the evidence is clear the federal government is used threats intimidation and i believe deception to impose growing command of control over our economy with the increasing nationalization of everything from banks to car companies runaway federal spending and deficits higher taxes government takeovers of energy and potentially health care all while the economy is deteriorating even further and more american jobs are being lost the american people are saying enough is enough and the american people want answers i look forward to hearing from mr paulson about his role in these dealings and when you'll back the balance of my time  bossie may be good ok german towns ranking member ice and distinguished members of the committee i served as secretary of the treasury from july two thousand and six to january two thousand a nine during my tenure the world experienced a financial crisis unprecedented in our lifetimes the crisis presented a relentless series of novel challenges that required swift of an dramatic response to had the crisis of two thousand and eight been left to unfold without strong federal reaction and intervention the world of two thousand and nine would look very different from the world we live in today many more americans would be without their homes their jobs their businesses their savings their way of lives the crisis of confidence last fall threaten to disrupt our entire financial system not just the institutions that had high credit losses on their mortgage investments but all financial firms whether weak or solvent as liquidity dried up the continue collapse of financial institutions that provide credit and handle payments would have meant in short order the firms across industries not just wall street but every street would have seen a massive curtailment of access to financing needed to purchase supplies and pay employees this payrolls would have quickly turned into even more millions of layoffs and this in turn would have meant an even greater retreat of consumer spending and would have been extremely difficult to break the momentum of this downward spiral now that the financial system has stabilized we can and should take the time to learn the lessons of the past in the rapidly changing crisis our responses were not perfect but i am confident that they were substantially correct and that they saved this nation from great peril this hearing is about bank of america and in my prepared testimony i lay out the series of events surrounding its acquisitions acquisition of merrill lynch there are three issues that are appropriate to address at the outset of this hearing first some have opined that i and other gov officials allowed concerns about systemic risk to outweigh concerns about potential harm to bank of america and its shareholders that simply did not happen and my view and the view of numerous government officials working on the matter the interest of the nation and bank of america were aligned with respect to the closing of the merrill lynch transaction second some of suggested that there was something inappropriate about my conversation of december twenty first with mr lewis and which i mentioned the possibility that the federal reserve could remove management and the board of bank of america if the bank involved the max was i believe it was appropriate for me to explain to mr lewis that the government was supportive of bank of america and then i felt very strongly that if bank of america exercised the mac laws that would show a colossal lack of judgment and would jeopardize bank of america merrill lynch and the financial system it was also appropriate for me to remind him that under such circumstances the federal reserve could invoke a sofa already to remove management and the board of bank of america i intended my message to reinforce the strong view that had been expressed by the fed and which was shared by the treasury that it would be unthinkable that bank of america take this destructive action third t destruction this suggestion has been made that i discourage mr lewis from making required disclosures to the public markets about losses at merrill lynch that simply did not happen and this year lewis has denied it and ambiguously in testimony before this committee i would like to conclude with what is most prominent in my recollection of the events of last fall what i recall most vividly as a nation faced with  an unparalleled economic crisis and they have parts of the man and woman from both the public and private sectors who worked hard to steer our nation away from that process it was my privilege to work with them and i'm proud of what we as you can see the document up on the screen mr lewis of bank of america claim to attorney general cuomo office that he would have renegotiated the deal if you didn't tell him he could not do so as lawyers say to mr lewis you can always renegotiate mr lewis when you are told you cannot  and an invocation of america clause whether it was all going to be resolved by the courts or be resolved by a renegotiation in the shareholder vote would lead to an extent and difficult of was what was it was a call from on december seventeenth i heard from a member of my staff that he would be calling and then i got a call from him said the the view of the government the fed and treasury that when these announces were lost or announced they would truly shake the market were it not for  at the request of chairman bernanke and that came from from cuomo as office and i apologize that his work was a little sloppy we get a letter but we there's no transcript there's no written record so we have to take his interpretation of your statements and that's one of the reasons you're here today we also dealt with ken lewis who came here with a situation in which he had received the threat by your own statements and yet he had to say that the threat was bank of america would have in fact had their lawsuit go forward much more readily so each of you before you have been in an odd situation you are uniquely positioned to help us one you've told us yes you did issue the threat to you believe that it was reasonable and i want to put it in perspective just for a moment perhaps for history historical purposes go back to the first gulf war of one nine hundred ninety in which margaret thatcher said to  president george herbert walker bush don't go wobbly on me george when she felt that that he was not prepared to pursue a war against saddam after he invaded and brutally treated people of kuwait this was not a war but this was an emergency situation your threat is admitted your threat was because you felt that there were clearly a disaster if they went if they didn't go forward with it after one more thing i'd like to ask you to elaborate on that and how mr cuomo came to give us a line he did as i understand is had had the mac was completely valid had  lewis renegotiated had they agreed to a new terms or to a breakup isn't it true that in fact we would have had a long period of time well notice statutory notice of  stockholders and then a stockholder vote occurred you know that there is if there had been a renegotiation there would have been an extended period and there would have been a review that's my understanding and isn't  that which is at the center of why you issued the threat and why can lewis ultimately decided that the damage from that period even if he got a better price or broke it either way could be disastrous to both  firms the reason again i don't lose didn't characterize it as a threat and i know actually he didn't care to characterize as a threat he managed to say that he didn't feel threatened well receiving a threat  characterization of what you had to say if you can help us if you will thread the needle between the two before my time is up i want to ask one other question sort of an easy question i was attempting to send a very strong message to us in terms of how strongly the fed and presented at that time which again very strong message to the league you know the lack of america being a legally viable option very strong message on a lack of judgment and terminated the deal to acquire merrill lynch you stay quote such an action which shall colossal lack of judgment and would jeopardize bank of america merrill lynch and the financial system unquote secretary it's a lack of management judgment merits decisive governmental action what about potential violations of the law mr paulson were you aware of concerns felt at the fed and treasury that ken lewis meant lewis's management team failed to do due diligence in acquiring merrill lynch and possibly violated securities laws by withholding material information from his shareholders to get the vote for the merger with merrill i was i've become aware from some of the emails that this committee has released and other documents and you know at that time there were concerns i know that there were some concerns at the time to my staff members some concerns at the time as to whether how you know along the lines of what you expressed on due diligence i had not heard concerns at that time about securities laws chairman bernanke he testified here that he shared those concerns about bank of america and that point did in two thousand and eight did you ever inform the management of any systemically significant bank that they would be forced out for any reason well i would say here's a calculus you have to ask yourself is this management capable of running the firm and is there someone else there that or someone else you know of that can do a better job and i would say that a large complex financial institutions are not easy to run and it's not easy to find strong people to run them during a financial crisis well i just want to say this mr paulson and i we have limited time and so i appreciate you answering these questions the investigators of this committee every few tens of thousands of pages including notes of conversations you participated in where the federal response to bank of america's problems was crafted these documents clearly show that you were an advocate of aggressive fiscal response you advocated for a large cash injection a very large asset protection plan but nowhere in these documents did we find evidence that you advocated for holding bank of america's management accountable for failing to do due diligence and for for withholding potentially material information from shareholders so mr secretary did you in fact advocate for requiring such accountability as a condition of the bailout you were developing i advocated the accountability we put in place which was we treated bank of america like citi group we treated them differently than those that went to the tarp the first time so we had  tougher restrictions on executive comp and we had provisions on foreclosure mitigation but in terms of replacing the c e o in this situation it was it was my judgment it was  judgment of the regulator that the it was appropriate to keep mr lewis it was that this is a decision made by the board of directors and for what for regulators to come in and decide to replace them we didn't think that was appropriate mr paulson as you know invoking the mac however ill considered it would have been was not against the law meanwhile bank of america's decision to withhold material information about a merger from shareholders and their failure to do due diligence are potential violations of perhaps you can explain to this committee how a secretary of the treasury can justify punishing an unwise but lawful act while ignoring believe that you guys intimidate mr lewis i think it starts starts at the october thirteenth meeting when you called the nine biggest banks to washington that in a what the meeting was about the whole meeting took forty five minutes you slide a piece of paper across they have to sign it right in the amount of tarp money they're going to take and i think it continues but my biggest concern is this again what i what i've said is that as a pattern of deception because i mean and this is the case i think american people need to see this situation because it sheds light on where we're headed we've got cars our pays our twenty one others ours we've got auto task force we've got unprecedented valma by the government in the private sector and coming soon to families across america we've got this comparative effectiveness boards want to decide what kind of health care you gotta get so it's important we see what happens when you give this kind of involvement to the federal government side and i walk you through a series of things that took place in this in this acquisition and then ask you a question at the end first i want to start with the what some people would describe as an exaggeration you said the world was going and everything was going to be terrible if in fact this deal didn't get completed and yet there are people at the fed like mr ashcroft who said the doomsday predictions were quote a little over the top you timed you time the release of information so you kept the american public in the dark you would you only gave verbal assurances to mr lew if you would put anything in writing you didn't want that out you made sure that your can loose is testimony to attorney general cuomo he said mr paulson said we don't want to disclosable event we have the angelo email which said we want to if merrill decides to file early we want to steer merrill to a later filing date so you controlled when the american people could get this information even though you're using seven armband dollars of their their money you deceive the regulators we have the attorney general's letter to congress and i quote secretary paulson did not keep the f c c chairman in the loop during discussions and negotiations with the bank of america the office of the comptroller of the currency was also kept in the dark we have letters email from the from brian peters from the from the new york fed where he's talking about an upcoming conference call and  quote given the presence of the o c c on the call i think we should not discuss or reference the call with ken lewis and secretary paulson maybe most importantly i just want to read from our staff to good work i want to read from the memo they put together you kept the financial stability oversight board in the dark as well and let me just read this not only did mr paulson mr bernanke you deliberately keep the f t c in o c c in the dark about events at bank of america merrill lynch you also failed to raise the issue at two consecutive meetings of the financial stability oversight board which congress established to bring oversight to tar according to the minutes of these up fs o b meetings it was not until the january fifteenth meeting that you and mr bernanke informed the board of the government's plans for additional bailouts of bank of america in connection with the merrill lynch merger so again you claim that failing to force them or merger would have had catastrophic effect on financial stability yet it wasn't worth revealing to the financial stability oversight board so you've got financial instability going to happen but you're not going to reveal what's going on to the financial stability oversight board and then the last example i would point to is when i started with go back to the october thirteenth meeting you deceive the banks involved with this you mean this is based on k side and you basically tell them they're going to take part money like it or not and so i have one question and this i think this is critical that was on october thirteenth that meaning i want to go back to october third because that's when this whole thing started when we started down this bailout ro bailout fever that's grabbed washington it frankly started on october third when the congress united states decided to give you seven hundred billion dollars of taxpayer money and the whole premise of that action was that you were going to take that money and you were going to go buy the troubled and toxic asset you're going to clean things up and things when to get back on the right track and yet to date the treasury's not purchased those assets so i want to know when did you know that you could not be able to do what you told congress i remember hearing that sitting in on the conference calls with  but let me get to the tarp because i think that's that's critical we went to congress and when we asked for authority to buy a liquid assets we also recognized we needed flexibility and we worked with congress to make sure that we had the flexibility to deal with whatever we had coming at us congress i believe knew they were giving and thank goodness they did give us that flexibility  happened in the last few days before we got the tarp legislation which passed on october third and then the week after we got the tarp legislation the markets continued to assets would you agree that was that was a main point that was a change in ten days that well let me say this that was that was the main thrust and that's what we talked about but we from the the american people would terrify the american people lead to even greater economic problems and so we were as we were attempting to explain this it was there was there was this every business even businesses seem to be solid and small businesses across america will not be able to fund their inventory they won't be able to meet their payroll you will  a when when the financial system breaks down the kinds of numbers that we were looking at in terms of unemployment was much greater than the numbers we're looking at now people in the streets and of course around the world it is very significant because i remember talking with for instance german leaders who were explaining to me that people in the  depression i remember asking ben bernanke what he thought the world would look like just take a look at what happened in the depression but i didn't spend a whole lot of time thinking about going about solving this problem was the correct way you know if you look at the talk about a meltdown we have nine and a half percent unemployment right now if you take into consideration those who are working part time getting unemployment compensation it's closer to sixteen and a half percent was an article in the wall street journal so you're talking about how you guys save the economy and save the world we do have a meltdown going on right now and if you don't believe it go out and look at some of the parts of my district let me just ask you a couple questions first of all in those conversations or calls expressly said it or if my understanding came from just the tone and the forcefulness you know you're very smart i don't think anybody's buying what you're saying right now i mean public you didn't want to make any of this public why not let me say to you that that is not a fact the only way this came up in connection with here we haven't decided on the size of the program the dollar amount we haven't decided on how many assets and if i gave a letter all i would be saying is what i've already said publicly which is that  testified clearly before this committee that i never ever suggested to him that he delay any disclosure what i said to him was something i would expect you all would agree with which is if we're going to issue a letter from the treasury i'm not going to issue a letter without disclosing that letter and i don't see the point of the letter because we have no specific agreement there's nothing to write down we don't have the size of the program we don't have the dollar amount and we've already publicly she gave him verbal assurance but she wouldn't put it in writing i gave him verbal assurance of that we were committed to working toget systemically important institution and bank of america was one now going beyond that we had had made it clear that we were going to be working with him to all of the support program but we didn't have a size we didn't have the amount of assets that would be recovered covered we had we didn't know what form of equity and how much we had nothing to do that definitive to say and so i said i don't see how a letter is going to be meaningful or helpful but if i give you a letter we're going to disclose it and then that got twisted around to say i didn't want to disclosure i know my time's up let me just read one thing real quick mr chairman here's what he said i was instructed that quote we do not want a public disclosure expressed the intent the central intent of this tarp program was to buy toxic assets to get the economy moving again and to get get folks lending again and you pounded away at that central th and what mr jordan was saying that a matter of days went by and you changed completely the focus of that program now in my i opinion you misled congress when you were asked by mr baucus in the financial services committee he said wouldn't it be more impactful i'm paraphrasing to just inject the money directly in the banks and you and what was your response i believe i said right there that you said that wouldn't work we've that you dismiss that we just missed that in open committee right which which led members of congress to believe that you won't going to do that now now hear me out if you would come up here what mr bernanke and said i got a plan i want to take eight hundred billion dollars in taxpayer money i want to give to my pals on the nine biggest banks of america how many votes do you think you would have got up here and that's that's why that's why i believe you have misled congress let me ask you something else this conversation that you had you had a conversation december twenty sixth twenty second i believe it was with the with mr lewis according to his testimony on a bike ride and he says that you spoke to him you are on a bicycle he was tell me what you said to him which conversation on the twenty first because i had two conversations with him on the twenty first well the one in which he says that you stated  received a call from telling me that he had been giving more thought to the situation and he and his board were increasingly concerned and were considering exercising the   the call i had with him was not one we're saying now let's get our script out i had a conversation with ben bernanke told him that i had heard from from from lewis and then then afterwards i got back to lewis with a conversation i days after the shareholder vote testified that he called you at that point told you he was strongly considering backing out is that what you were referring to just a moment ago or was it conversation inkling of the problem was on december seventeenth and that's when he called and he said the fourteenth well he call you and that's what we have information that when there's another conversation on the twenty first that he was again very seriously moving towards getting out of the deal because of what he had learned and he said that is when you threatened to remove him and the board of directors at bank of america do you recall threatening him and one of those  loose if they backed out of the deal is that correct i didn't use those words but i sure told them it would be very serious problem and it would create financial havoc but there was there were backup plans were you aware of those information relating to a possible backup plan by british air regulatory authority and that there were backup plans if in fact they did go through with the deal you're not aware of any backup plan i don't know what was the only option the the i don't know what the the you know we certainly had we had our tarp and we were we were low on  management contend that they have the required shareholder support or aren't confident that a transaction will be approved with tomorrow's vote if approval is withheld m l will continue to have access to the various facilities and programs currently in place in the united states additionally it is response it is reasonable to expect that m l would be provided necessary support to preclude sufficient systemic the gentleman from illinois mr quickly paulson i guess i want to put this in context of what didn't happen with lehman and i believe the expression used was a moral hazard which is the think we have a regulatory system this imbalance and you have the wind down powers that the administration is requesting and whole point congress will pass that lets a bank institution fail without disrupting the system that there will be the moral hazard will be have more teeth in it so why was lehman a moral hazard and not situation because their perception at the time was this is a liquidity problem because we had a number of stable regulated insurance companies that were asked each time for more assistance and we had the we had the private sector ready to to fill the gap but the but bank of america in my judgment was never serious about it because each time they showed less interest and it turns out they were there they were interested in merrill lynch we had another buyer barclays that we thought was going to do the lewis wasn't replaced was his situation different did and and show did you promise him he could keep his job and he did it this way absolutely not these are these decisions for for for the government to come in and take the responsibility away from the board and replace the board there's got to be a very good reason and fannie freddie there was good reasons but i also looked at this very pragmatically and said these are big difficult institutions to run is the current c e o is he capable of running this institution and and then you've got to say who else is suitable to come in i run these institutions and i appreciate my my time is up i guess you could see how that peers to be splitting hairs of who you fire and who you don't fire and it and it could very easily be construed to those who are making these decisions in these financial institutions that their first course their first thought must be that they have to listen whatever you say if they have to play ball or because you have such discretion you know those who play ball keep their jobs and those that don't get fired you know a time is expired is a chapter from utah thank you thank you secretary paulson for being here i appreciate it when this country experienced enron there was outrage from coast to coast people who were not informed about the material things that were happening and not happening within that within that company because the shareholders were left in the dark my concern is the lack of transparency of the to the shareholders and of the public at large not only as investors but but as investors as shareholders if you will as being taxpayers in this country so the question i have want to get follow up on mr jordan's question a little deeper into why you did not share this information with other regulatory agencies for instance the f t c why did you feel compared to share information with the first of all we were working with the regulators were involved with putting the financial systems together that was the effort the the the benefit but but the the responsibility it is is not a treasury secretary's job to get between a company and its and the f c c for instance but when you're closer that i've been around long enough to know these are critically important decisions and that's the responsibility of a c e o working his general counsel and with and with the regulator that's not what you were a participant in the financial stability oversight board i mean part of one of the requirements with tarp was that the financial stability oversight board in which you had two meetings and you did not inform the f c c nor did you inform the office of the comptroller of the currency why is that the be because i take exception with the  n after a january eighth meeting of the financial stability board i sat down with chairman chris cox and i explained to him he was still early we didn't have the package together but me let me go back to what attorney general andrew cuomo said quote that he told congress in his april twenty third letter that hank paulson quote informed this office that he did not keep the f c c chairman in the loop during the discussions the negotiations at the bank of america in december  did not that's absolutely correct you feel no obligation one agency that is out there as an advocate for the for the shareholders you didn't think that that was an important effort on your part or you didn't feel any obligation to share with the with regard to the relationship of bank of america to the f c c that is something that is not my responsibility it's not the responsibility the fed that's the role of bank of america to work with phone with the financial stability oversight board because this has come up you know several times right we did not begin to have this together until we brought it to the financial stability board and there was a full and thorough airing there and the landlord that was what i call far after these deals were already cut these deals were not cut these deals were not cut that's where there's a misunderstanding there was an understanding that we were going to work to get something done but we had nothing specific to bring forward and the other point i made was in january eighth in his role as a member of the financial stability oversight board i gave  briefing i think mr chairman what needs to be explored further is that i wasn't here i'm a freshman you wouldn't want to be here because i would have voted against this tarp by that i think it's an absolute disaster but i got to tell you that i think this congress or the congress before this did set up this financial stability oversight board to precisely make sure there wasn't this audacity of arrogance that there would be held in just one or two pieces persons hands and that there would be more involvement from other agencies that are very relevant and to exclude the one agency that is shared and that is tasked with taking care of shareholders i think is inexcusable and i think we need dive into further i see that my time's  mr paulson i was on that call i think september october when you inform congress mr bernanke of the dire condition in the financial markets and my understanding of what your goals were in mr bernanke at that time were to do basically three things one stabilize the financial system number two eventually reform the system and number three repay the taxpayer is that more or less a fair assessment i want to go to this and i share that concern about repaying the taxpayer when the deal with bank of america went through the federal government and you were very much a part of this did two things to help in a stability effort one was the tarp payment of twenty billion dollars and number two was the asset backing of these mortgage backed securities of one hundred eighteen billion dollars correct and the intention was that the taxpayer get repaid on that twenty billion dollars tarp payment some firms have repaid goldman sachs j p morgan and there was going to be an eight percent interest rate paid to the taxpayer on preferred stock correct shareholders and to the owners of these securities that the federal government would make good on them in the event that there was a collapse correct and my understanding is that it was the intention of the treasury department  that the taxpayers be compensated for providing this guarantee correct yes and that that guarantee was going to be in the form of a fee of about four billion frankly i think that's where most americans would be i would say on this one i don't know where you're leading i just was not i don't have the details because i'm not asking the details i'm not sure why  a treasury secretary of the united states government person filling the shoes of alexander hamilton would agree that when you give your word you're going to keep your word i would expect we would keep the word but and i think you would i give you credit for that my question is this mr lewis apparently is now saying that there was no deal he didn't sign it even though he benefited by it he doesn't want to pay back the american taxpayer for the benefit that the treasury and the u s taxpayer provided is that the right thing for mr lewis to do well i don't know what the circumstances are so i don't you know i don't know i think there's a lot of things you did well and i think i understand you're trying to stabilize the situation but i think it's a simple yes or no we put the treasury department u s taxpayers one hundred eighteen billion dollars of our money at risk explain why don't why i'm hedging on this because i was part of doing a similar deal for citigroup and we and then it was very difficult to get it done and citi group wanted to get it done least as much as the u s government it was hard to get it done so what i don't know if the circumstance presented it ok then it would be one answer but i do not know why because i wasn't there i don't all i know is we had a term i left government and the deal didn't close well and here's the bottom line on one of the frustrations a lot of us voted for that program because we felt it was lesser of evils we didn't want to and i remember you on the phone call you actually were quite the last thing in the world you want to come to the american taxpayer bailout but it was your honest judgment that if we didn't do it there would be a calamity that would basically try to do two things in here and find out what happened and find out should it have happened why did it have an appropriate action that's the oversight why it happened is  a factual issue now on the factual side what we hear from you is that you don't deny that you told mr lewis don't renegotiate and don't back out you disagree as to whether or not it was an actual threat for his removal being the consequences but you told him don't renegotiate don't back out and the why you say is because for the american people you believe it was irresponsible that the interest of the shareholders of the bank of america were the interest of the nation which the financial markets were risk and apparently twelve billion dollars is not material for you to believe that a material change occurred and you cite your vast experience now you also say that you have taken actions that there's been removal before you cite the actions of fannie freddie and on removal those were so different you had failures of organizations you didn't have just merely a business deal that was going forward so they're really not comparable i mean i don't think you have an instance where you can provide us that's comparable where there's a threat from the treasury secretary for the purposes of removal of a of a c e o for a business transaction to go forward unless there are other threats that you put forward that were not yet aware of now the thing about your vast experience it really strikes me is that you really have no exact science with your past experience you cite the impact on the markets your view of this deals the impressions of how the markets might have an impression which is not a science there is no accounting problem from which you made your decision there is no data point from which you made your decision and with all the responsibilities that you had which apparently somewhere around that time include skiing there was no way that you could have been up to speed on the economics the due diligence the specifics of the details of this deal to the extent of someone to intervene enough to say do not renegotiate this deal and do not back out now i agree with representative lynch i absolutely believe that you misled congress and i want to take you back to  meeting that you had with cheney yourself mr paulson and bernanke you were you came before the republican conference to explain your seven hundred billion dollar bailout deal which i voted against you came forward and told us that you were going to toxic assets illiquid assets and if these were not removed from the market that we were going to have calamity and that the crisis was those toxic assets were causing again the market to have instability because the markets had the impression that these toxic assets having no value raise questions to the value of the institutions i thought it was a crock then and and i voted against it and then you turned completely away from the toxic assets and i believe that you're misrepresenting congress i don't think it was an issue of just asking for flexibility i also voted against it because the deal was you didn't tell us who was going to get the money in tell us what the money was going to be used for intel it was how much and the part that was crucial to me is that you didn't step forward and say these are the changes that need to be made in our regulatory systems in the laws to make certain that this never happened again and the other thing that was important to me is that i believed that we were about to participate in the largest theft in history i come from ohio ground zero for the mortgage foreclosure crisis and when you were standing in front of us asking for seven hundred billion dollars of taxpayers money to back bailout what you called taxes toxic assets these mortgage backed securities as a result of mortgage foreclosure crisis in the credit default swaps i realize that you were asking me to give taxpayers money to bail out these people who i believe were systematically do fraud ing my community and the people who who were buying houses and refinancing their houses with over valuations and i had a great concern as did my community that the underlying collateral for these mortgage backed securities was not there and that's ultimately what took down the valuation of those mortgage backed securities so my question to you is mr paulson in your vast amount of experience since you were in this position in july of two thousand and six while the mortgage foreclosure crisis was raging throughout the country and your description of people losing their homes was happening then not just in two thousand and eight when you stepped in with your tarp program there were record foreclosures mortgage backed securities were being traded with significant questions i believe in the market of the underlying value of the collateral sub prime mortgage lending spiral refinances we're increasing based on inflated and escalating property values where was your vast experience then and what do you believe we should have done in two thousand and six to a stop well for first of all you are making the comment that i did not see this crisis coming to the financial crisis meetings with the president's working group on preparations number one and number two i'll go i would take exception with a lot of the things you said i began working on a plan which we had announced in march well before i went to congress to overhaul the outdated inadequate regulatory system and so we came out with that in march came out with the recommendations that we need to wind down these non banking institutions if they get in trouble so they don't have to be bailed out and the only other thing i would say to you was i am not disputing the fact that when bernanke came to congress we understood the illiquid assets because illiquid assets were at the heart of the problem in the financial institutions that was that was at the heart of the problem that was a major cause for the losses for the illiquidity and so our approach was to buy those illiquid assets that was our primary approach and we learned and 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 and i the decision that when the facts change you need to move quickly and change and i'm just saying the only point i was trying to make wasn't to say we didn't come to congress and ask for a like what assets but thank goodness when we came to congress we also asked to have some flexibility in congress gave us a flexibility and so and the last point i would make is the people i care about are the same ones you care about the american people the people that are going to lose their jobs and and the the tragedy is they didn't create the problem it or the big banks that created the problem which it's a whole lot of the problems created not by them but they would be the one that would pay the greatest penalty if there was a collapse and so that was what i was working for  five minutes to the gentlewoman from california congresswoman speaker thank you mr chairman if if the people of america didn't create the problem who created the problem if the people of america didn't create the problem he said the people of america didn't create the problem so tell us who created well this place where the banks involved well i would say this this was this problem there's so much blame to go around you it's hardly well given whatever you give us a few people when you look at excesses have been building up for a very long time and i just want you to give me some names i have a limited amount of time that well would we call the  multitude you'd be interested in knowing that in the financial services committee yesterday all the banks are represented and they almost to the person indicated that they weren't responsible for this but let me move on do you use e mail do i use e mail no i don't personally you don't use it personally or professionally i just don't so i've never used it for any business communications just never use it so while you were trying to sector the treasury you never used e mail how did you communicate with people ok when you gave b of a mr lewis fifteen billion dollars in october he didn't want it we were told so why did you give it to him well th the edge and we needed to move quickly we just decided that the only way to do something that was could be dramatic and make a difference was going to be to put capital get capital quickly and get it out into nine systemically important major institutions so we call them together the regulators let them know what their recommendation was for each institution and mr lewis like the other c e o s their very willingly agreed to take the capital because they recognize had as much to gain as anyone from the stability of the system all right so you gave them fifteen billion dollars in october and then another ten billion dollars in january ninth and then twenty billion dollars on january twentieth it's interesting that that amount of money equals about forty five billion dollars they paid fifty billion dollars for merrill lynch in many respects i feel like the taxpayers bought merrill lynch for the bank of america well i would say this to you the taxpayer benefited in two ways first of all i would be very optimistic that the taxpayer all of that money back with a profit number one and secondly with the taxpayer because if we'd had the financial system collapse the taxpayer would be the people who would be hurt all right let me ask you this this press release went out from your office of secretary of the treasury on january sixteenth and this press release talks about the package to the b of a and specifically says that the treasury and the will provide protection against the possibility of unusually large losses on an asset pool of approximately one hundred eighteen billion dollars of love so this ring fence was a done deal on january sixteenth were you giving him something or giving b of a something that that they didn't actually have to agree to but give the appearance that they had something and then they could renay got it congresswoman i have no idea what happened after i left but how professional is it to put out a statement at a press release that something has been consummated when it hadn't been consummated but listen we tried i mean that's kind of like i'm getting contracts one on one i'm getting it from both angles here people wanting me to put out letters when there's nothing to disclose here we had communicated to the market that we had a term sheet the market knew that this deal wasn't closed yet we were announcing a deal with the intent of closing it and why it didn't cause you'll have to ask your people that are it treasury today this chairman i certainly would hope that we would question further who was responsible at that point in time for these you say another word you're just about to transition between treasury secretaries had had mr geithner or the incoming administration signed off on the tentative term the mr geithner is you know was the treasury secretary designate and he wanted there to be a very smooth transition and so i posted him generally a number of matters including that matter but i never viewed him as a decision that i think have been misstated as somebody who voted for all three versions of tarp took incredible political heat in the middle of a tough targeted race i believe it was the right thing to do and i would do it again with additional c but there's been a lot said today about the restrictions that were put on you in fact you came in my opinion not very tactfully and told us that you wanted basically a blank sheet of paper with with whatever you wanted to do  initially they didn't need any republican votes paul ryan and others in our caucus negotiated some twenty ages of additional things but the bottom line is that we left there or the secretary of treasury and those responsible can do whatever they think they need to do now we can try to cast blame we can try to say whatever we want and in the future we probably need to tie it down more but at the end of the day our conference after hours of internal debate knew that given the nature of the crisis we had signed a blank check for good or bad that we were going into an election season we were about to leave town it was getting hard a political lies things were changing i'm not defending the decisions that you made i'm just saying it's a little bit much for members of congress to claim that there were all these guidelines in place because we knew full well you had an opt out clause now that said clearly you mis us and we probably would have had the votes even though we underneath knew that that was there because we understood it was toxic assets we didn't believe you were going to take over and the way this was going to of how had we known that the bill would never passed or would have put tighter restrictions in because what i would say is it was a verbal misleading even though if anybody read the document it actually gave you a total blank check now i would also say i don't understand where people are saying that we were in a crisis every forty eight hours for three months somebody was calling me telling me a bank was either calling the revolving loan the mark to market was tightening up their assets so the banks were having their assets drop people who were never late in their history people to know how to get their payroll dollars major corporations in this country were having to borrow overseas from from third world countries in order to meet their payroll and there that i don't know where it would have gone i represent a district that has the highest unemployment in united states that i have even elkhart county has been first in unemployment all the way through but they're fifty seven percent manufacturing there seventeen point six percent right now unemployment we're we're headed to a lot more than we are now i'm not necessarily happy with everything that's happening but it could have been a lot worse i don't know how but in fact it's relatively stabilized and that that i think there's that we can have differences of opinion of how to do it not here's my concern about what i saw in the lewis thing and where it's evolved when when you intimidated at the very least mr lewis into saying the government's going to do it somewhere in here we went from toxic assets and loans and your stated goal to us was we didn't want the government micromanaging and directing that was the next step louis process then you say when you handed it over you thought you had a process but then you don't really know what happened after that since then we now have common stock in banks we're telling them on bonuses we're micromanaging tomorrow we have a proposal now that we've taken over stock  m to tell g m that they can't close dealerships now this is the problem when government starts to take over if you were treasury secretary now where would you have started to draw the line here you started to walk into it with with mr lewis when you realized that that could come in scrambled would you have moved a common stock do you believe this is gone too far what lessons can we learn from what we've seen here because right now the government is in so deep that getting out is going to be very difficult and we're micromanaging and congress is going to start to tell people what kind of tie they can buy if we're not careful to me that's the right question and one of the things that was  most difficult for me as i came to this job believing totally and i still do markets and free enterprise and not wanting to see to help to preserve the markets so i think the key question is not only how do you get into these programs but what's the right exit strategy what is the right exit strategy when is the system stable and when when do we get out and i don't think that it is appropriate for me as a former secretary of treasury five months out of a job to be not any closer to it than i can now to be to be saying more than that other than because i think everyone here understands that that government has been forced to do things i think forced to do things by large banking institution other than the bankruptcy process there was and we had a really outmoded outdated regulatory system it's fair to say that even under great pressure you didn't take common stock