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Thursday, February 5, 2009

WSJ on BAC and the Fed

When BAC CEO John Lewis saw the spiraling losses at Merrill Lynch and tried to back out of the deal, the Fed told him he had no justification to do that.  The WSJ report implies that the Fed told him if he backed out of the deal and BAC needed more government money down the road, the Fed would consider ousting executives and directors.

The Skew:  Extremely unsettling information.  The Fed threatened to fire Lewis if he didn’t go against his better judgment and buy Merrill Lynch.  While keeping Merrill alive is obviously more confidence-building than Merrill failing, coercing bank executives to go against the best interests of the company by threatening to fire them is depressing, sad and astoundingly dangerous.  Bank of America stock is in a tailspin now.  If the banks continue this slide, whose head will they hold the gun to next?

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