The following is a dramatic reenactment. While the core events are real, a certain amount of color has been added to make it moderately more entertaining.
Scene: Office of the New York State attorney general, Manhattan. This morning.
New York attorney general Andrew Cuomo leaned his back against the door of his office. Bryce had just giddily sent off his explosive fax to Congress, in which Cuomo explained exactly what went down in the darkest hours of the Bank of America takeover of Merrill Lynch. It had been a chilling report to compile: As Ken Lewis and the board of Bank of America became aware of just how deep Merrill's 2008 fourth-quarter losses were ($7 billion deeper than advertised), they began to consider enacting the material-averse change clause in their takeover agreement. It would undo the final merger, which had gone into effect two weeks prior. Had they done it, it might have saved Bank of America huge losses, but it might have also caused a systematic meltdown in the financial sector.
When Ken Lewis informed Treasury secretary Hank Paulson of his intent, he was immediately called to Washington. Upon his return to New York, Lewis addressed the board, and the decision to invoke the MAC clause was reversed.
Cuomo shook his head, reliving the events. What had happened? Power had happened. In the privacy of Paulson's office, the secretary had made it plain: If Lewis invoked the clause and rejected Merrill, the government would replace him and the entire BofA board. "That makes it simple," Lewis said. "Let's de-escalate." "You will never speak of this and of Merrill's weaknesses to anyone except your board,"* Paulson then intoned. "Do you understand?" Lewis understood.
The fact that Cuomo had uncovered all of these secrets did nothing to assuage the weakness in his knees. He had seen power, real power, and once his thirst for it had been awakened, it might never be slaked. Paulson has the power to remove heads of the largest banks in the world! To make them do whatever he wants with a twitch of his beard! And here was Cuomo, sending letters and threatening to make bonus-lists public. Sure, it had been a thrill early on, when he got executives to return those first AIG bonuses, but it didn't last long. And now, compared to this, it was nothing.
Cuomo reopened his door for a moment. "Bryce, get me an energy drink," he told his assistant. He needed a rush, but he knew that it — and nothing ever again — would be the same.
Treasury Pushed BofA to Close Merrill Deal, Cuomo Says [DealBook/NYT]
*In all likelihood, this is not what Paulson said. But it's the general idea.